SECOND DIVISION

[G.R. No. 126881. October 3, 2000.]

HEIRS OF TAN ENG KEE, Petitioners, v. COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY, Respondents.

DECISION

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision 1 dated March 13, 1996 of the former
Fifth Division 2 of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states: chanrob1e s virtua1 1aw 1ib rary

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed.

The facts are: chanro b1es vi rtua 1 1aw 1ib ra ry

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent, joined
by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN
ENG KEE, filed suit against the decedent’s brother TAN ENG LAY on February 19, 1990. The complaint, 3 docketed as Civil
Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an
amended complaint 4 impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay.
The amended complaint was admitted by the trial court in its Order dated May 3, 1991. 5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their
resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee’s death.
Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet Lumber" into a
corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his
heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April 12, 1995, to wit: cha nrob 1es vi rtua l 1aw lib rary

WHEREFORE, in view of all the foregoing, judgment is hereby rendered: c hanro b1es vi rtua l 1aw li bra ry

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business venture
and/or particular partnership called Benguet Lumber and as such should share in the profits and/or losses of the business
venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and as such the
heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular
partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber Company Inc. to
render an accounting of all the assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the
business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company, Inc. until
such time that said corporation is finally liquidated are directed to submit the name of any person they want to be appointed
as receiver failing in which this Court will appoint the Branch Clerk of Court or another one who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED. chanrob1es vi rtua 1 1aw 1i bra ry

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court. Petitioners’ motion for reconsideration 7 was denied by the Court of Appeals in a
Resolution 8 dated October 11, 1996.

Hence, the present petition. cha nrob1es vi rtua1 1aw 1ib rary

1
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the use
of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-
78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of
commercial documents by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1,
wherein the charges were filed, rendered judgment 9 dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that: chan rob1es v irt ual 1aw l ibra ry

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN
ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO
AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP
(PAGE 13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT TAN
ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY
EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION: chanrob 1es vi rtua l 1aw lib rary

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE
PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE
CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER
WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN
ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP
SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed on appeal
if such are supported by the evidence. 10 Our jurisdiction, it must be emphasized, does not include review of factual issues.
Thus:chanrob1e s virtual 1aw lib rary

Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final order or resolution
of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file
with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must
be distinctly set forth. 11 [Emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze the evidentiary basis on
which the lower court rendered judgment. Review of factual issues is therefore warranted: chanrob 1es vi rtua l 1aw lib ra ry

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

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(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are contrary to
the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different
conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record. 12

In reversing the trial court, the Court of Appeals ruled, to wit: chan rob1e s virtual 1aw lib rary

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the existence of a
partnership, the Court in turn went beyond that by justifying the existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between the parties, equal proprietary
interest and the exercise by the parties equally of the conduct of the business, thus: chanrob1es vi rtual 1aw lib rary

x x x

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war. The
appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war
Benguet Lumber were confiscated if not burned by the Japanese. After the war, because of the absence of capital to start a
lumber and hardware business, Lay and Kee pooled the proceeds of their individual businesses earned from buying and
selling military supplies, so that the common fund would be enough to form a partnership, both in the lumber and hardware
business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses.
Because of the pooling of resources, the post-war Benguet Lumber was eventually established. That the father of the
plaintiffs and Lay were partners, is obvious from the fact that: (1) they conducted the affairs of the business during Kee’s
lifetime, jointly, (2) they were the ones giving orders to the employees, (3) they were the ones preparing orders from the
suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5) all their children were employed in
the business in different capacities.

x x x

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for
the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the
war until Kee’s death in 1984. It had no business book, no written account nor any memorandum for that matter and no
license mentioning the existence of a partnership [Citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4, 1971, Exhibit "2",
mentioned co-defendant Lay as the only registered owner of the Benguet Lumber and Hardware. His application for
registration, effective 1954, in fact mentioned that his business started in 1945 until 1985 (thereafter, the incorporation).
The deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber Company, on the basis of his SSS
coverage effective 1958, Exhibit "3." In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was
similarly listed only as an employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay was
mentioned also as the proprietor.

x x x

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an
immovable is constituted, the execution of a public instrument becomes necessary. This is equally true if the capitalization
exceeds P3,000.00, in which case a public instrument is also necessary, and which is to be recorded with the Securities and
Exchange Commission. In this case at bar, we can easily assume that the business establishment, which from the language
of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real
properties and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was never
established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his family. There
is no proof either that the capital assets of the partnership, assuming them to be in existence, were maliciously assigned or
transferred by Lay, supposedly to the corporation and since then have been treated as a part of the latter’s capital assets,
contrary to the allegations in pars. 6, 7 and 8 of the complaint. chanro b1es vi rt ua1 1aw 1i bra ry

These are not evidences supporting the existence of a partnership: chan rob1e s virtual 1aw lib rary

1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house in Trinidad, but
within the compound of the lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a table
and were "commanding people" as testified to by the son, Elpidio Tan; 3) that both were supervising the laborers, as testified
to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of the
G.I. sheets were added to the business. chanro b1es vi rtua 1 1aw 1ib ra ry

Partnership presupposes the following elements [Citation omitted]: 1) a contract, either oral or written. However, if it

3
involves real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of
the parties to execute the contract; 3) money property or industry contribution; 4) community of funds and interest,
mentioning equality of the partners or one having a proportionate share in the benefits; and 5) intention to divide the profits,
being the true test of the partnership. The intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements from the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE and TAN
ENG LAY had allegedly entered into a joint venture. In this connection, we have held that whether a partnership exists is a
factual matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the
correctness of the assessment of the evidence by the court a quo. 13 Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to determine if the reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of
partnership is defined by law as one where: chanrob 1es vi rtua l 1aw lib rary

. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. 14

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to
contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. 15
The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in
two instances: (1) when immovable property or real rights are contributed, 16 and (2) when the partnership has a capital of
three thousand pesos or more. 17 In both cases, a public instrument is required. 18 An inventory to be signed by the parties
and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is
contributed to the partnership. 19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is akin to a
particular partnership. 20 A particular partnership is distinguished from a joint adventure, to wit: chanro b1es vi rt ual 1aw li bra ry

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no firm name
and no legal personality. In a joint account, the participating merchants can transact business under their own name, and
can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to
a successful termination may continue for a number of years; a partnership generally relates to a continuing business of
various transactions of a certain kind. 21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party
has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the
conduct of the business." 22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al., 23 we
expressed the view that a joint venture may be likened to a particular partnership, thus: chanrob 1es vi rtua l 1aw lib rary

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is
hardly distinguishable from the partnership, since their elements are similar — community of interest in the business, sharing
of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson,
95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited
by most opinions in common law jurisdiction is that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature.
(Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus
be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in
a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments,
Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is
none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil
Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well be
argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on
August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a partnership
existed based purely on circumstantial evidence. A review of the record persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to
establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the
precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an established
fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a partnership.
The testimonies to that effect of petitioners’ witnesses is directly controverted by Tan Eng Lay. It should be noted that it is
not with the number of witnesses wherein preponderance lies; 24 the quality of their testimonies is to be considered. None of
petitioners’ witnesses could suitably account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio
Peralta whose deceased wife was related to Matilde Abubo. 25 He stated that when he met Tan Eng Kee after the liberation,
the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. 26 Tan
Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother. 27 Tan Eng Lay
consistently testified that he had his business and his brother had his, that it was only later on that his said brother, Tan Eng
Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an
indicium of the existence of a partnership. 28
4
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng
Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses. 29 Each
has the right to demand an accounting as long as the partnership exists. 30 We have allowed a scenario wherein" [i]f
excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing
the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible." 31 But in the
situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take
ordinary care of his concerns. 32 As we explained in another case: chanro b1es vi rtua l 1aw lib ra ry

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish any help
or intervention in the management of the theatre. In the third place, it does not appear that she has even demanded from
defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were
correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to
receive her share of P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between
them. 33 [Emphasis supplied]

A demand for periodic accounting is evidence of a partnership. 34 During his lifetime, Tan Eng Kee appeared never to have
made any such demand for accounting from his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls purporting to show that
Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The authenticity of these documents was
questioned by petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife and children. As
aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng
Kee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides: chan rob1es v irt ua1 1aw 1 ibra ry

In determining whether a partnership exists, these rules shall apply: chan rob1e s virtual 1 aw lib rary

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a
joint or common right or interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits were received in payment: chan rob1es v irt ual 1aw l ibra ry

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if
the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not present
and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the
profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the
profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between themselves, which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of
circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the
employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee
and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.

However, private respondent counters that: chanrob1es vi rtua 1 1aw 1i bra ry

Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges granted in favor of
Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for the following reasons: chan rob1es v irt ual 1aw li bra ry

(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore,
that an employee’s position is higher in rank, it is not unusual that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from
suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this
particular task. It is, thus, not an indication that Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not accorded to
other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal
relations existed between them. Whatever privileges Tan Eng Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan Eng Lay towards a blood relative.

5
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the pricing of stocks, this
does not adequately prove the existence of a partnership relation between them. Even highly confidential employees and the
owners of a company sometimes argue with respect to certain matters which, in no way indicates that they are partners as
to each other. 35

In the instant case, we find private respondent’s arguments to be well-taken. Where circumstances taken singly may be
inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these circumstances may be such
as to support a finding of the existence of the parties’ intent. 36 Yet, in the case at bench, even the aforesaid circumstances
when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in
the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of
the family, he occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable
were he not kin, such as his residence in the Benguet Lumber Company compound. He would have moral, if not actual,
superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his
duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to
the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a business organized
and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition
must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is hereby AFFIRMED in toto.
No pronouncement as to costs.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.

Endnotes:

1. Rollo, pp. 129-147.

2. Justice Bernardo LL. Salas, ponente, with Justices Pedro A. Ramirez and Ma. Alicia Austria-Martinez, concurring.

3. Records, pp. 1-4.

4. Records, pp. 123-126.

5. Records, p. 130.

6. Records, pp. 632-647.

7. Rollo, pp. 148-159.

8. Rollo, p. 173.

9. Rollo, pp. 412-419.

10. Brusas v. Court of Appeals, 313 SCRA 176, 188 (1999); Guerrero v. Court of Appeals, 285 SCRA 670, 678 (1998); Atillo
III v. Court of Appeals, 266 SCRA 596, 605-606 (1997); Mallari v. Court of Appeals, 265 SCRA 456, 461 (1996).

11. 1997 RULES OF CIVIL PROCEDURES, Rule 45, Sec. 1.

12. Fuentes v. Court of Appeals, 268 SCRA 703, 708-709 (1997).

13. Cf . Alicbusan v. Court of Appeals, 269 SCRA 336, 340-341 (1997).

14. CIVIL CODE, Art. 1767.

15. Yulo v. Yang Chiao Seng, 106 Phil. 110, 116 (1959).

16. CIVIL CODE, Art. 1771.

17. CIVIL CODE, Art. 1772.

18. Note, however, Article 1768 of the Civil Code which provides: "The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first
paragraph." 19. CIVIL CODE, Art. 1773.20. "A particular partnership has for its object determinate things, their use or
cralaw virtua1aw l ibra ry

fruits, or a specificundertaking, or the exercise of a profession or vocation." (CIVIL CODE, Art. 1783)21. V.E. PARAS, CIVIL
CODE OF THE PHILIPPINES ANNOTATED 546 (13th ed., 1995).22. Sevilla v. Court of Appeals, 160 SCRA 171, 181 (1988).23.
180 SCRA 130, 146-147 (1989).24. REVISED RULES ON EVIDENCE, Rule 133, Sec. 1.25. TSN, June 23, 1990, p. 9.26. TSN,
January 28, 1993, p. 85.27. TSN, July 1, 1993, p. 13; TSN, July 8, 1993, p. 4.28. Navarro v. Court of Appeals, 222 SCRA
675, 679 (1993); CIVIL CODE, Art. 1769.29. Moran v. Court of Appeals, 133 SCRA 88, 95 (1984).30. Fue Lung v.
Intermediate Appellate Court, 169 SCRA 746, 755 (1989)31. Id., at 754.32. 1997 RULES OF CIVIL PROCEDURE, Rule 131,
Sec. 3, Par. (d).33. Yulo v. Yang Chiao Seng, 106 Phil. 110, 117 (1959).34. Estanislao, Jr. v. Court of Appeals, 160 SCRA
830, 837 (1988).
35. Private Respondent’s Memorandum, Rollo, p. 390.
36. Evangelista, et. al. v. Collector of Internal Revenue, Et Al., 102 Phil. 141, 146 (1957).

6
 EN BANC

G.R. No. 159139 June 15, 2005

INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, MA. CORAZON M. AKOL, MIGUEL UY,
EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN, REX C. DRILON, MIGUEL HILADO, LEY SALCEDO, and
MANUEL ALCUAZ JR., Petitioners,
vs.
COMMISSION ON ELECTIONS; COMELEC CHAIRMAN BENJAMIN ABALOS SR.; COMELEC BIDDING and
AWARD COMMITTEE CHAIRMAN EDUARDO D. MEJOS and MEMBERS GIDEON DE GUZMAN, JOSE F.
BALBUENA, LAMBERTO P. LLAMAS, and BARTOLOME SINOCRUZ JR.; MEGA PACIFIC eSOLUTIONS, INC.;
and MEGA PACIFIC CONSORTIUM, Respondents.

RESOLUTION

PANGANIBAN, J.:

Our Decision1 in the present case voided the Contract entered into by the Commission on Elections (Comelec) for
the supply of automated counting machines (ACMs) because of "clear violation of law and jurisprudence" and
"reckless disregard of [Comelec’s] own bidding rules and procedure." Moreover, "Comelec awarded this billion-dollar
undertaking with inexplicable haste, without adequately checking and observing mandatory financial, technical and
legal requirements. x x x. The illegal, imprudent and hasty actions of the Commission have not only desecrated legal
and jurisprudential norms, but have also cast serious doubts upon the poll body’s ability and capacity to conduct
automated elections." As a result, the ACMs illegally procured and improvidently paid for by Comelec were not used
during the 2004 national elections.

In its present Motion, the poll body expressly admits that the Decision "has become final and executory," and that
"COMELEC and MPC-MPEI are under obligation to make mutual restitution." Otherwise stated, this admission
implies that the ACMs are to be returned to MPC-MPEI, and that the sum of over one billion pesos illegally paid for
them be refunded to the public purse.2 In short, ownership of the ACMs never left MPC-MPEI and the money paid
for them still belongs, and must be returned, to the government.

Consequently, the ACMs, which "admittedly failed to pass legally mandated technical requirements" cannot be used
during the forthcoming elections in the Autonomous Region for Muslim Mindanao (ARMM). Apart from formidable
legal, jurisprudential, technical and financial obstacles, the use of the machines would expose the ARMM elections
to the same electoral pitfalls and frauds pointed out in our Decision. If the ACMs were not good enough for the 2004
national elections, why should they be good enough now for the 2005 ARMM elections, considering that nothing has
been done by Comelec to correct the legal, jurisprudential and technical flaws underscored in our final and
executory Decision?

The Motion

Before us is the Commission on Election’s "Most Respectful Motion for Leave to Use the Automated Counting
Machines in [the] Custody of the Commission on Elections for use (sic) in the August 8, 2005 Elections in the
Autonomous Region for Muslim Mindanao (ARMM)," dated December 9, 2004. In its January 18, 2005 Resolution,
the Court required the parties to comment. After careful deliberation on all pleadings at hand, we now resolve the
Motion.

Background Information

At the outset, we stress that the Decision in the present case, promulgated on January 13, 2004, has long attained
finality.3 In our February 17, 2004 Resolution, we denied with finality Comelec’s Motion for Reconsideration dated
January 28, 2004, as well as private respondents’ Omnibus Motion dated January 26, 2004. The Decision was
recorded in the Book of Entries of Judgments on March 30, 2004.

Recall that our Decision declared Comelec to have acted with grave abuse of discretion when, by way of its
Resolution No. 6074, it awarded the Contract for the supply of automated counting machines (ACMs) to private
respondents. It did so, not only in clear violation of law and jurisprudence, but also with inexplicable haste and
7
reckless disregard of its own bidding rules and procedures; particularly the mandatory financial, technical and legal
requirements. It further manifested such grave abuse of discretion when it accepted the subject computer hardware
and software even though, at the time of the award, these had patently failed to pass eight critical requirements
designed to safeguard the integrity of the elections. Consequently, this Court was constrained to exercise its
constitutional duty by voiding the assailed Resolution No. 6074 awarding the Contract to Mega Pacific Consortium,
as well as the subject Contract itself executed between Comelec and Mega Pacific eSolutions, Inc.

Comelec was further ordered to refrain from implementing any other contract or agreement it had entered into with
regard to the said project. We also declared that, as a necessary consequence of such nullity and illegality, the
purchase of the ACMs and the software, along with all payments made for them, had no basis in law. Hence, the
public funds spent must be recovered from the payees and/or the persons who made the illegal disbursements
possible, without prejudice to possible criminal prosecutions against them.4

Likewise, our February 17, 2004 Resolution denying reconsideration found movants to have raised the same
procedural and substantive issues already exhaustively discussed and definitively passed upon in our Decision. In
that Resolution, we emphasized (and we reiterate here) that the Decision did not prohibit automation of the
elections. Neither did the Court say that it was opposed to such project (or the use of ACMs) as a general
proposition. We repeated our explanation that the reason for voiding the assailed Resolution and the subject
Contract was the grave abuse of discretion on the part of Comelec; as well as its violations of law -- specifically RA
9184, RA 8436, and RA 6955 as amended by RA 7718; prevailing jurisprudence (the latest of which was Agan v.
Philippine International Air Terminals Co., Inc.5); and the bidding rules and policies of the Commission itself.

Comelec’s Claims

Notwithstanding our Decision and Resolution, the present Motion claims, inter alia, that the ARMM elections are
slated to be held on August 8, 2005, and are mandated by RA 9333 to be automated; that the government has no
available funds to finance the automation of those elections; that considering its present fiscal difficulties, obtaining a
special appropriation for the purpose is unlikely; that, on the other hand, there are in Comelec’s custody at present
1,991 ACMs, which were previously delivered by private respondents; that these machines would deteriorate and
become obsolete if they remain idle and unused; that they are now being stored in the Comelec Maxilite Warehouse
along UN Avenue, at "storage expenses of ₱329,355.26 a month, or ₱3,979,460.24 annually."

The Motion further alleges that "information technology experts," who purportedly supervised all stages of the
software development for the creation of the final version to be used in the ACMs, have unanimously confirmed that
this undertaking is in line with the internationally accepted standards (ISO/IEC 12207) for software life cycle
processes, "with its quality assurance that it would be fit for use in the elections x x x."

Comelec also points out that the process of "enhancement" of the counting and canvassing software has to be
commenced at least six (6) months prior to the August 8, 2005 ARMM elections, in order to be ready by then. It
asserts that its Motion is (a) without prejudice to the ongoing Civil Case No. 04-346 pending before the Regional
Trial Court of Makati City, Branch 59, entitled "Mega Pacific eSolutions, Inc. v. Republic of the Philippines
(represented by the Commission on Elections)," for the collection of a purported ₱200 million balance due from
Comelec under the voided Contract; and (b) with a continuing respectful recognition of the finality and legal effects
of our aforesaid Decision. At bottom, Comelec prays that it be granted leave to use the ACMs in its custody during
the said ARMM elections.

Private Respondents’ Contentions

Commenting on the present Motion, private respondents take the position that, since the subject ACMs have
already been delivered to, paid for and used by Comelec, the Republic of the Philippines is now their owner, without
prejudice to Mega Pacific eSolutions, Inc.’s claim for damages in the case pending before the RTC of Makati; and
that, consequently, as far as private respondents are concerned, the question of using the subject ACMs for the
ARMM elections is dependent solely on the discretion of the owner, the Republic of the Philippines.

Petitioners’ Comment

On the other hand, petitioners contend that Comelec is asking this Court to render an advisory opinion, in
contravention of the constitutional provision6 that explicitly states that the exercise of judicial power is confined to (1)
settling actual controversies involving rights that are legally demandable and enforceable; and (2) determining
whether there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any
branch or instrumentality of government.

Petitioners assert that there is no longer any live case or controversy to speak of -- an existing case or controversy
that is appropriate or ripe for determination, not merely conjectural or anticipatory; and that Comelec’s allegations in
its Motion do not amount to an actual case or controversy that would require this Court to render a decision or
resolution in the legitimate exercise of its judicial power. This lack of actual controversy is clearly seen in the relief
prayed for in the Motion: the grant of a leave to use the ACMs during the ARMM elections. Obviously, Comelec
8
merely seeks an advisory opinion from this Court on whether its proposal to use the ACMs during the said elections
might be in violation of this Court’s Decision dated January 13, 2004, and Resolution dated February 17, 2004.

Assuming arguendo that the present Motion might somehow be justified by the government’s fiscal difficulties,
petitioners further argue that permitting Comelec to use the ACMs would nevertheless allow it to do indirectly what it
was not permitted by this Court to do directly. They argue that the instant Motion is merely a subterfuge on the poll
body’s part to resurrect a lost case via a request for an advisory opinion.

The OSG’s Comment

The Office of the Solicitor General (OSG) declares in its Comment that, in compliance with this Court’s directive for it
to "take measures to protect the government and vindicate public interest from the ill effects of the illegal
disbursements of public funds made by reason of the void [Comelec] Resolution and Contract," it filed on behalf of
the Republic on July 7, 2004, an Answer with Counterclaim in Civil Case No. 04-346. The OSG prayed for the return
of all payments made by Comelec to Mega Pacific under the void Contract, amounting to ₱1,048,828,407.

The OSG also manifests that it received a copy of the Complaint-Affidavit dated September 15, 2004, filed with the
Office of the Ombudsman by the Bantay Katarungan Foundation and the Kilosbayan Foundation against the
Comelec commissioners who had awarded the Contract for the ACMs; and the private individuals involved,
including the incorporators and officers of Mega Pacific eSolutions, Inc. This Complaint-Affidavit was for violation of
the Anti-Plunder Law (RA 7030), the Anti-Graft and Corrupt Practices Act (RA 3019 as amended), and the Code of
Conduct and Ethical Standards for Public Officials and Employees (RA 6713).

The complainants alleged immense kickbacks and horrendous overpricing involved in the purchase of the 1,991
ACMs. Based on the OSG’s available records, it appears that Comelec withdrew from Land Bank ₱1.03 billion, but
actually paid Mega Pacific only ₱550.81 million. Furthermore, commercial invoices and bank applications for
documentary credits reveal that each ACM cost only ₱276,650.00, but that Comelec agreed to pay Mega Pacific
₱430,394.17 per unit -- or a differential of ₱153,744.17 per unit or an aggregate differential of ₱306.10 million.
Moreover, Mega Pacific charged ₱83.924 million for value-added taxes (VAT) and ₱81.024 million more for customs
duties and brokerage fees, when in fact -- under the nullified Contract -- it was supposed to be exempt from VAT,
customs duties and brokerage fees. Lastly, Comelec agreed to peg the ACM price at the exchange rate of ₱58 to
$1, when the exchange rate was ₱55 to $1 at the time of the bidding, resulting in additional losses for the
government amounting to about ₱30 million.

The OSG hews to the view that the automation of elections, if properly carried out, is a desirable objective, but is
mindful of the need for mutual restitution by the parties as a result of the final Decision nullifying the Contract for the
ACMs. Nevertheless, in apparent response to Comelec’s clamor to use the ACMs in the ARMM elections, the OSG
manifests that it has no objection to the proposal to use the machines, provided however that (1) Comelec should
show with reasonable certainty that the hardware and software of the ACMs can be effectively used for the intended
purpose; (2) Mega Pacific should be made to return to the Republic at least a substantial portion of the overprice
they charged for the purchase of the ACMs; and (3) the use of these machines, if authorized by this Court, should
be without prejudice to the prosecution of the related criminal cases pending before the Office of the Ombudsman
(OMB).

The OMB’s Manifestation

For its part, the Office of the Ombudsman manifested that as a result of the nullification of the Contract, various fact-
finding investigations had been conducted, and criminal and administrative charges filed before it against the
persons who appeared to be responsible for the anomalous Contract; and that the various cases had been
consolidated, and preliminary investigation conducted in respect of the non-impeachable Comelec officials and co-
conspirators/private individuals. Furthermore, the OMB is in the process of determining whether a verified
impeachment complaint may be filed against the poll body’s impeachable officials concerned.

A Supplemental Complaint prepared and filed by the Field Investigation Office of the Ombudsman reveals that the
ACMs were overpriced by about ₱162,000.00 per unit; that, additionally, Mega Pacific unduly benefited by including
VAT and import duties amounting to ₱194.60 million in its bid price for the ACMs, despite Section 8 of RA 8436
exempting such equipment from taxes and duties; that Comelec nonetheless awarded the Contract to Mega Pacific
at the same bid price of ₱1.249 billion, inclusive of VAT, import duties and so on; and that the Commission allowed
Mega Pacific to peg the ACM price using an exchange rate of ₱58 to $1 instead of ₱53 to $1, which further inflated
Mega Pacific’s windfall.

The foregoing notwithstanding, the OMB had allegedly prepared a comment on the present Motion, stating its
position on the issue of utilizing the ACMs, but upon further reflection decided not to file that comment. It came to
the conclusion that ventilating its position on the matter might engender certain impressions that it had already
resolved factual and/or legal issues closely intertwined with the elements of the offenses charged in the criminal and
administrative cases pending before it. "For one, utilizing illegally procured goods or the intentional non-return
thereof to the supplier may have a bearing on the determination of evident bad faith or manifest partiality, an

9
essential element in any prosecution under the anti-graft law, and may, at the same time, be constitutive of
misconduct penalized under relevant disciplinary laws."

Consequently, out of prudential considerations, the OMB prayed to be excused from commenting on the merits of
the present Motion, to avoid any perception of prejudgment, bias or partiality on its part, in connection with the
criminal and administrative cases pending before it.

The Court’s Ruling

Decision Subverted by the Motion

There are several reasons why the present Motion must be denied. First, although it professes utmost respect for
the finality of our Decision of January 13, 2004 -- an inescapable and immutable fact from which spring equally
ineludible consequences -- granting it would have the effect of illegally reversing and subverting our final
Decision. Plainly stated, our final Decision bars the grant of the present Motion.

To stress, as a direct result of our January 13, 2004 Decision, the Contract for the supply of the subject ACMs was
voided, and the machines were not used in the 2004 national elections. Furthermore, the OSG was directed "to take
measures to protect the government and vindicate public interest from the ill-effects of the illegal disbursements of
public funds made by reason of the void Resolution." Accordingly, in Civil Case No. 04-346, the government counsel
has prayed for mutual restitution; and for the "return of all payments, amounting to ₱1,048,828,407.00 made by
Comelec to Mega Pacific under the void Contract."

In the meantime, Comelec has done nothing -- at least, nothing has been reported in the present Motion -- to abide
by and enforce our Decision. Apparently, it has not done anything to rectify its violations of laws, jurisprudence and
its own bidding rules referred to in our judgment. Neither has it reported any attempt to correct and observe the
"mandatory financial, technical and legal requirements" needed to computerize the elections.

Apparently, it has simply filed the present Motion asking permission to do what it has precisely been prohibited from
doing under our final and executory Decision. If law and jurisprudence bar it from using the subject ACMs during the
last elections, why should it even propose to use these machines in the forthcoming ARMM elections? True, these
elections are important. But they cannot be more important than the 2004 national elections. Note that the factual
premises and the laws involved in the procurement and use of the ACMs have not changed. Indeed, Comelec has
not even alleged, much less proven, any supervening factual or legal circumstances to justify its Motion.

Basic and primordial is the rule that when a final judgment becomes executory, it thereby becomes immutable and
unalterable. In other words, such a judgment may no longer undergo any modification, much less any reversal, even
if it is meant to correct what is perceived to be an erroneous conclusion of fact or law; and even if it is attempted by
the court rendering it or by this Court.7 Equally well-entrenched is the doctrine that what is not permitted to be
done directly may not be done indirectly either. In the instant case, it is unarguable that the inexorable result of
granting the present Motion will precisely be a subversion of the Decision, or at least a modification that would
render the latter totally ineffective and nugatory.

To support its present Motion, Comelec appended as Annex 1 a letter dated January 22, 2004. Addressed to its
chairman, the Annex was signed by four8 self-proclaimed "information technology experts,"9 who had gratuitously
contended that this Court’s Decision was "one of the most inopportune rulings ever to come out of the hallowed
halls of that High Tribunal"; blame the Decision for supposedly forcing our people "to entrust their votes to a manual
system of counting and canvassing that have been proven to be prone to massive fraud in the past"; and mouth
legal/technical arguments that have already been repeatedly debunked in the Decision and Resolution here. The
letter also included a long-winded, tortuous discussion of the software development life cycle.

A quick check of the case records confirmed our suspicion. The very same letter dated January 22, 2004 had
previously been appended as Annex 2 to private respondents’ "Omnibus Motion A) for reconsideration of the
Decision dated 13 January 2004; b) to admit exhibits in refutation of the findings of fact of the Court; c) to have the
case set for hearing and/or reception of evidence if deemed necessary by the Court." The only difference is that this
time around, Comelec overlooked or failed to photocopy the last page (page 17) of the letter, bearing the signatures
of the four other purported "information technology experts."10 In other words, to support its present Motion, it merely
recycled an earlier exhibit that had already been used in seeking reconsideration of our aforesaid Decision.

While expressing utmost reverence for the finality of the Decision, Comelec implicitly seeks, nevertheless, to have
this Court take up anew matters that have already been passed upon and disposed of with finality.

It is a hornbook doctrine that courts are presumed to have passed upon all points that were raised by the parties in
their various pleadings, and that form part of the records of the case. Our Resolution, disposing of respondents’
arguments on reconsideration, did not explicitly and specifically address all of the matters raised in the said letter of
January 22, 2004. It is presumed however, that all matters within an issue raised in a case were passed upon by the
Court,11 as indeed they were in the instant case. And as we have held elsewhere,12 courts will refuse to reopen what
10
has been decided; they will not allow the same parties or their privies to litigate anew a question that has been
considered and decided with finality.

Besides, the letter of January 22, 2004, laden as it is with technical jargon and impressive concepts, does not serve
to alter by even the minutest degree our finding of grave abuse of discretion by Comelec, on account of its clear
violations of law and jurisprudence and its unjustifiable and reckless disregard of its own bidding rules and
procedures.

Furthermore, the letter would obviously not contain anything that might serve to persuade us that the situation
obtaining in January 2004 has so changed in the interim as to justify the use of the ACMs in August 2005.

The Commission seems to think that it can resurrect the dead case by waving at this Court a letter replete with
technical jargon, much like a witch doctor muttering unintelligible incantations to revive a corpse.

In its main text, the Motion concedes that our Decision "has become final and executory," and that all that remains
to be done is "to make mutual restitution."13 So, what is the relevance of all these useless argumentations and
pontifications in Annex 1 by the Commission’s self-proclaimed "experts"? For its own illegal acts, imprudence and
grave abuse of discretion, why blame this Court? For Comelec to know immediately which culprit should bear full
responsibility for its miserable failure to automate our elections, it should simply face the mirror.

Recovery of Government Funds Barred by the Motion

Second, the grant of the Motion will bar or jeopardize the recovery of government funds improvidently paid to
private respondents, funds that to date the OSG estimates to be over one billion pesos. At the very least, granting
the Motion will be antagonistic to the directive in our Decision for the OSG to recover the "illegal disbursements of
public funds made by reason of the void Resolution and Contract."

Indeed, if the government is conned into not returning the ACMs but instead keeping and utilizing them, there would
be no need for Mega Pacific to refund the payments made by Comelec. In fact, such recovery will no longer be
possible. Consequently, all those who stood to benefit (or have already benefited) financially from the deal would no
longer be liable for the refund. They can argue that there was nothing wrong with the voided Resolution and
Contract, nothing wrong with the public bidding, nothing wrong with the machines and software, since the
government has decided to keep and utilize them. This argument can be stretched to abate the criminal
prosecutions pending before the OMB and the impeachment proceedings it is considering. After all, "reasonable
doubt" is all that is needed to secure acquittal in a criminal prosecution.

In brief, the poll body’s Motion not only asks for what is legally impossible to do (to reverse and subvert a final and
executory Decision of the highest court of the land), but also prevents the Filipino people from recovering illegally
disbursed public funds running into billions of pesos. Verily, by subverting the Decision of this Court, the Motion
would be unduly favoring and granting virtual immunity from criminal prosecution to the parties responsible for the
illegal disbursement of scarce public funds.

Use of the ACMs and Software Detrimental to ARMM Elections

Third, the use of the unreliable ACMs and the nonexistent software that is supposed to run them will expose the
ARMM elections to the same electoral ills pointed out in our final and executory Decision. Be it remembered that this
Court expressly ruled that the proffered hardware and software had undeniably failed to pass eight critical
requirements designed to safeguard the integrity of elections, especially the following three items:

"· They failed to achieve the accuracy rating criterion of 99.9995 percent set up by the Comelec itself.

"· They were not able to detect previously downloaded results at various canvassing or consolidation levels and to
prevent these from being inputted again.

"· They were unable to print the statutorily required audit trails of the count/canvass at different levels without any
loss of data."14

The Motion has not at all demonstrated that these technical requirements have been addressed from the time our
Decision was issued up to now. In fact, Comelec is merely asking for leave to use the machines, without mentioning
any specific manner in which the foregoing requirements have been satisfactorily met.

Equally important, we stressed in our Decision that "[n]othing was said or done about the software -- the deficiencies
as to detection and prevention of downloading and entering previously downloaded data, as well as the capability to
print an audit trail. No matter how many times the machines were tested and retested, if nothing was done about the
programming defects and deficiencies, the same danger of massive electoral fraud remains."15

11
Other than vaguely claiming that its four so-called "experts" have "unanimously confirmed that the software
development which the Comelec undertook, [was] in line with the internationally accepted standards (ISO/IEC
12207) [for] software life cycle processes," the present Motion has not shown that the alleged "software
development" was indeed extant and capable of addressing the "programming defects and deficiencies" pointed out
by this Court.

At bottom, the proposed use of the ACMs would subject the ARMM elections to the same dangers of massive
electoral fraud that would have been inflicted by the projected automation of the 2004 national elections.

Motion Inadequate and Vague

Fourth, assuming arguendo that the foregoing formidable legal, financial and technical obstacles could be
overcome or set aside, still, the Motion cannot be granted because it is vague; it does not contain enough details to
enable this Court to act appropriately.

The sham nature of the Motion is evident from the following considerations. While Comelec asserts a pressing need
for the ACMs to be used in the ARMM elections, strangely enough, it has not bothered to determine the number of
units that will be required for the purpose, much less tried to justify such quantification. It contracted for a total of
1,991 ACMs, intended for use throughout the entire country during the 2004 elections. Are we to believe that all
1,991 units would be utilized to count and canvass the votes cast in the ARMM elections? Such a scenario is highly
unlikely, even ridiculous.

A genuine, bona fide proposal for the utilization of the ACMs would naturally have included a well-thought-out plan
of action, indicating the number of units to be deployed, places of utilization, number of operators and other
personnel required, methods/periods of deployment and recovery or retrieval, assessments of costs and risks
involved in implementing the proposal, and concomitant justifications, among other things. Now, either "The Plan" is
being kept absolutely top secret, or it is completely nonexistent.

Furthermore, once the ACMs are deployed and utilized, they will no longer be in the same condition as when they
were first delivered to Comelec. In fact, it is quite probable that by the time election day comes around, some of the
machines would have been mishandled and damaged, maybe even beyond repair. What steps has the poll body
taken to make certain that such eventualities, if not altogether preventable, can at least be minimized so as to
ensure the eventual return of the ACMs and the full recovery of the payments made for them? A scrutiny of the 4-
page Motion16 ends in futility. It is all too clear that a failure or inability of Comelec to return the machines sans
damage would most assuredly be cited as a ground to refuse the refund of the moneys paid. Yet, if Comelec has
given any thought at all to this or any other contingency, such fact has certainly not been made evident to us.

ARMM Elections Not Jeopardized by Nonuse of ACMs

Fifth, there is no basis for the claim that unless the subject ACMs are used, the ARMM elections would not be held.

At the outset, if such elections are not held, the blame must be laid squarely at the doorstep of Comelec. To stress,
had it not gravely abused its discretion, the automation of the vote counting and canvassing processes would have
already become a reality over a year ago, and the ACMs that would have been used in the 2004 national elections
would now be available for the ARMM elections.

In any event, the Commission in its Motion argues that the government, given its present fiscal difficulties, has no
available funds to finance the automation of the ARMM elections. Without even asking under what authority it has
assumed the role of Treasury spokesman, we emphasize that there would not now be any lack of funds for election
automation had it not improvidently turned over ₱1 billion of taxpayers’ moneys to Mega Pacific’s bank accounts.

Nevertheless, had the poll body been honestly and genuinely intent on implementing automated counting and
canvassing for the ARMM elections, it ought to have informed Congress of the non-availability of the subject ACMs
due to our Decisions and of the need for special appropriations, instead of wasting this Court’s time on its
unmeritorious Motion. In fact, if only it had taken proper heed of our Decision of January 13, 2004, it could have
conducted an above-board public bidding for the supply of acceptable ACMs.

Certainly, this option or course of action was not foreclosed by our Decision. Moreover, there was sufficient time
within which to conduct the public bidding process. RA 9333, which set the second Monday of August 2005 (August
8, 2005) as the date of the ARMM elections, was enacted on September 21, 2004. Undoubtedly, Comelec was
made aware of the proposed date of the ARMM elections way before the passage of RA 9333. Thus, the poll body
had about ten (10) months at the very least (between the end of September 2004, when RA 9333 came into force
and effect, and August 8, 2005) to lobby Congress, properly conduct a public bidding, award the appropriate
contracts, deliver and test the new machines, and make final preparations for the election.

Even assuming that a new public bidding for ACMs was not a viable option, still, Comelec has had more than
sufficient lead time -- about ten months counted from the end of September 2004 until August 8, 2005 -- to prepare
12
for manual counting and canvassing in the ARMM elections. It publicly declared, sometime in late January 2004,
that notwithstanding our Decision nullifying the Mega Pacific Contract, it would still be able to implement such
manualization for the May 10, 2004 national elections. It made this declaration even though it had a mere three
months or so to set up the mechanics. In this present instance involving elections on a much smaller scale, it will
definitely be able to implement manual processes if it wants to.

There is therefore absolutely no basis for any apprehension that the ARMM elections would not push through simply
because the present Motion cannot pass muster. More to the point, it would be ridiculous to regard the grant of
permission to use the subject ACMs as the conditio sine qua non for the holding of the ARMM elections.

What is most odious is the resort to the present Motion seeking the use of the subject ACMs despite the availability
of viable alternative courses of action17 that will not tend to disturb or render this Court’s final Decision ineffectual.
Thus, the present Motion is wholly unnecessary and unwarranted. Upon it, however has Comelec pinned all its
hopes, instead of focusing on what the poll body can and ought to do under the circumstances. The consequences
of granting its lamentable Motion, we repeat, will indubitably subvert and thwart the Decision of this Court in the
instant case.

Equally reprehensible is the attempt of the Commission to pass the onus of its mismanagement problems on to this
Court. For instance, the Motion quotes the cost of storage of the ACMs in its Maxilite Warehouse at ₱329,355.26
per month or ₱3,979,460.24 per annum. Assuming for the nonce that the machines have to be held in storage
pending the decision in the civil case (as it would simply not do to throw the machines out into the streets), why must
it assume the cost of storage? Per our Decision, the machines are to be returned to Mega Pacific. If it refuses to
accept them back, it does not follow that Comelec must pick up the tab. Instead of further wasting the taxpayers’
money, it can simply send the bill to Mega Pacific for collection.

It would be entirely improper, bordering on unmitigated contempt of court, for the Commission to try to pass on the
problem to this Court through its Motion.

No Actual Case or Controversy

Finally, the Motion presents no actual justiciable case or controversy over which this Court can exercise its judicial
authority. It is well-established in this jurisdiction that "x x x for a court to exercise its power of adjudication, there
must be an actual case or controversy -- one which involves a conflict of legal rights, an assertion of opposite legal
claims susceptible of judicial resolution; the case must not be moot or academic or based on extra-legal or other
similar considerations not cognizable by a court of justice. x x x [C]ourts do not sit to adjudicate mere academic
questions to satisfy scholarly interest, however intellectually challenging."18 The controversy must be justiciable --
definite and concrete, touching on the legal relations of parties having adverse legal interests.19 In other words, the
pleadings must show an active antagonistic assertion of a legal right, on the one hand, and a denial thereof on the
other; that is, it must concern a real and not a merely theoretical question or issue.20 There ought to be an actual
and substantial controversy admitting of specific relief through a decree conclusive in nature, as distinguished from
an opinion advising what the law would be upon a hypothetical state of facts.21

A perusal of the present Motion will readily reveal the utter absence of a live case before us, involving a clash of
legal rights or opposing legal claims. At best, it is merely a request for an advisory opinion, which this Court has no
jurisdiction to grant.22

EPILOGUE

We close this Resolution by repeating the last two paragraphs of our final and executory Decision:

"True, our country needs to transcend our slow, manual and archaic electoral process. But before it can do so, it
must first have a diligent and competent electoral agency that can properly and prudently implement a well-
conceived automated election system.

"At bottom, before the country can hope to have a speedy and fraud-free automated election, it must first be able to
procure the proper computerized hardware and software legally, based on a transparent and valid system of public
bidding. As in any democratic system, the ultimate goal of automating elections must be achieved by a legal, valid
and above-board process of acquiring the necessary tools and skills therefor. Though the Philippines needs an
automated electoral process, it cannot accept just any system shoved into its bosom through improper and illegal
methods. As the saying goes, the end never justifies the means. Penumbral contracting will not produce enlightened
results."23

Comelec must follow and not skirt our Decision. Neither may it short-circuit our laws and jurisprudence. It should
return the ACMs to MPC-MPEI and recover the improvidently disbursed funds. Instead of blaming this Court for its
illegal actions and grave abuse of discretion, the Commission should, for a change, devise a legally and technically
sound plan to computerize our elections and show our people that it is capable of managing the transition from an
archaic to a modern electoral system.
13
WHEREFORE, the Motion is hereby DENIED for utter lack of merit.

SO ORDERED.

ARTEMIO V. PANGANIBAN
Associate Justice

WE CONCUR:

HILARIO G. DAVIDE, JR.

Chief Justice

REYNATO S. PUNO LEONARDO A. QUISUMBING

Associate Justice Associate Justice

CONSUELO YNARES-SANTIAGO ANGELINA SANDOVAL-GUTIERREZ

Associate Justice Associate Justice

ANTONIO T. CARPIO MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice Associate Justice

RENATO C. CORONA CONCHITA CARPIO MORALES

Associate Justice Associate Justice

ROMEO J. CALLEJO, SR. ADOLFO S. AZCUNA

Associate Justice Associate Justice

DANTE O. TINGA MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice

Footnotes

1
419 SCRA 141, January 13, 2004.

2 "As a necessary consequence of such nullity and illegality, the purchase of the machines and all
appurtenances thereto including the still-to-be-produced (or in Comelec’s words, to be ‘reprogrammed’)
software, as well as all the payments made therefor, have no basis whatsoever in law. The public funds
expended pursuant to the void Resolution and Contract must therefore be recovered from the payees and/or
from the persons who made possible the illegal disbursements, without prejudice to possible criminal
prosecutions against them.

"Furthermore, Comelec and its officials concerned must bear full responsibility for the failed bidding
and award, and held accountable for the electoral mess wrought by their grave abuse of discretion in
the performance of their functions. The State, of course, is not bound by the mistakes and illegalities
of its agents and servants." (Id., pp. 203-204.)

3 The Comelec Motion expressly recognizes this fact on page 2, which we quote:

14
 "Since the Decision has become final and executory, COMELEC and MPC-MPEI are under
obligation to make mutual restitution."

4 The dispositive portion of our Decision reads:

"WHEREFORE, the Petition is GRANTED. The Court hereby declares NULL and VOID Comelec
Resolution No. 6074 awarding the contract for Phase II of the AES [Automated Election System] to
Mega Pacific Consortium (MPC). Also declared null and void is the subject Contract executed
between Comelec and Mega Pacific eSolutions (MPEI). Comelec is further ORDERED to refrain
from implementing any other contract or agreement entered into with regard to this project.

"Let a copy of this Decision be furnished the Office of the Ombudsman which shall determine the
criminal liability, if any, of the public officials (and conspiring private individuals, if any) involved in the
subject Resolution and Contract. Let the Office of the Solicitor General also take measures to protect
the government and vindicate public interest from the ill effects of the illegal disbursements of public
funds made by reason of the void Resolution and Contract."

5 402 SCRA 612, May 5, 2003 and 420 SCRA 575, January 21, 2004.

6 Art. VIII, Sec. 1, par. 2, 1987 Constitution.

7Philippine Veterans Bank v. Estrella, 405 SCRA 168, June 27, 2003. While there are recognized
exceptions to the rule -- viz., the correction of clerical errors, nunc pro tunc entries that cause no prejudice to
any party, and of course when the judgment is void -- movants have not claimed or shown that any such
exceptions apply here.

8 There are actually more than four signatories, as will be explained presently.

9 They are Nelson J. Celis, Ma. Elena P. Van Tooren, Antonio G. Tinsay and Carlos Manuel.

10
The latter four are Romeo Monteclaro, Allan Borra, Ma. Leonora Padero and Alfonso Palpal-latoc Jr.

11Rule 131, Sec. 3(o) of the Rules of Court. See Toh v. Solid Bank Corporation, 408 SCRA 544, August 7,
2003.

12Vide Heirs of De Leon vda. de Roxas v. CA, 422 SCRA 101, February 6, 2004 (citing Buaya v. Stronghold
Insurance Co., Inc., 342 SCRA 576, October 11, 2000.)

13 Comelec Motion, p. 2.

14 Decision, supra, p. 148.

15 Id., p. 193; italics in the original.

16 The text of the main Motion contains only four pages, not counting the annexes thereof.

17For instance, during the 13th International Judicial Conference held in Kiev, Ukraine, on May 25-27, 2005,
Carlos Velloso, president of the Superior Electoral Tribunal of Brazil, publicly offered the free use of the
automated counting machines that had been successfully utilized in the automation of the elections in that
country, which has many more voters than the Philippines.

18 Republic v. Tan, 426 SCRA 485, March 30, 2004, per Carpio Morales, J.

19 See Aetna Life Insurance Co. v. Hayworth, 300 U.S. 227 (1937).

20 Vide: De Lumen v. Republic, 50 OG No. 2, February 14, 1952, p. 578.

21 Aetna Life Insurance Co. v. Hayworth, supra.

22 See also Automotive Industry Workers Alliance v. Romulo, GR No. 157509, January 18, 2005.

23 Decision, supra, p. 204.

15
 SECOND DIVISION

[G.R. No. 178782 : September 21, 2011]

JOSEFINA P. REALUBIT, PETITIONER, VS. PROSENCIO D. JASO

AND EDEN G. JASO, RESPONDENTS.

DECISION

PEREZ, J.:

The validity as well as the consequences of an assignment of rights in a

joint venture are at issue in this petition for review filed pursuant to Rule
45 of the 1997 Rules of Civil Procedure,[1] assailing the 30 April 2007
Decision[2] rendered by the Court of Appeals' (CA) then Twelfth Division
in CA-G.R. CV No. 73861,[3] the dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order the
dissolution of the joint venture between defendant-appellant Josefina
Realubit and Francis Eric Amaury Biondo and the subsequent conduct of
accounting, liquidation of assets and division of shares of the joint
venture business.

Let a copy hereof and the records of the case be remanded to the trial
court for appropriate proceedings.[4]

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into

a Joint Venture Agreement with Francis Eric Amaury Biondo (Biondo), a
French national, for the operation of an ice manufacturing
business. With Josefina as the industrial partner and Biondo as the
capitalist partner, the parties agreed that they would each receive 40%
of the net profit, with the remaining 20% to be used for the payment of
the ice making machine which was purchased for the business.[5] For
and in consideration of the sum of P500,000.00, however, Biondo
subsequently executed a Deed of Assignment dated 27 June 1997,
transferring all his rights and interests in the business in favor of
respondent Eden Jaso (Eden), the wife of respondent Prosencio
Jaso.[6] With Biondo's eventual departure from the country, the Spouses
Jaso caused their lawyer to send Josefina a letter dated 19 February
1998, apprising her of their acquisition of said Frenchman's share in the
business and formally demanding an accounting and inventory thereof
as well as the remittance of their portion of its profits.[7]

Faulting Josefina with unjustified failure to heed their demand, the

Spouses Jaso commenced the instant suit with the filing of their 3
August 1998 Complaint against Josefina, her husband, Ike Realubit
(Ike), and their alleged dummies, for specific performance, accounting,
examination, audit and inventory of assets and properties, dissolution of
the joint venture, appointment of a receiver and damages. Docketed as
Civil Case No. 98-0331 before respondent Branch 257 of the Regional
Trial Court (RTC) of Parañaque City, said complaint alleged, among
other matters, that the Spouses Realubit had no gainful occupation or
business prior to their joint venture with Biondo; that with the income of
the business which earned not less than P3,000.00 per day, they were,
however, able to acquire the two-storey building as well as the land on
which the joint venture's ice plant stands, another building which they
used as their office and/or residence and six (6) delivery vans; and, that
aside from appropriating for themselves the income of the business, the
Spouses Realubit have fraudulently concealed the funds and assets
thereof thru their relatives, associates or dummies.[8]

Served with summons, the Spouses Realubit filed their Answer dated 21
October 1998, specifically denying the material allegations of the
foregoing complaint. Claiming that they have been engaged in the tube
ice trading business under a single proprietorship even before their
dealings with Biondo, the Spouses Realubit, in turn, averred that their
said business partner had left the country in May 1997 and could not
have executed the Deed of Assignment which bears a signature
markedly different from that which he affixed on their Joint Venture
Agreement; that they refused the Spouses Jaso's demand in view of the
dubious circumstances surrounding their acquisition of Biondo's share in
the business which was established at Don Antonio Heights,
Commonwealth Avenue, Quezon City; that said business had already
stopped operations on 13 January 1996 when its plant shut down after
its power supply was disconnected by MERALCO for non-payment of
utility bills; and, that it was their own tube ice trading business which
had been moved to 66-C Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City that the Spouses Jaso mistook for the ice manufacturing
16
business established in partnership with Biondo.[9]

The issues thus joined and the mandatory pre-trial conference

subsequently terminated, the RTC went on to try the case on its merits
and, thereafter, to render its Decision dated 17 September 2001,
discounting the existence of sufficient evidence from which the income,
assets and the supposed dissolution of the joint venture can be
adequately reckoned. Upon the finding, however, that the Spouses Jaso
had been nevertheless subrogated to Biondo's rights in the business in
view of their valid acquisition of the latter's share as capitalist
partner,[10] the RTC disposed of the case in the following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete

accounting and inventory of the assets and liabilities of the joint venture
from its inception to the present, to allow plaintiffs access to the books
and accounting records of the joint venture, to deliver to plaintiffs their
share in the profits, if any, and to pay the plaintiffs the amount of
P20,000. for moral damages. The claims for exemplary damages and
attorney's fees are denied for lack of basis.[11]

On appeal before the CA, the foregoing decision was set aside in the
herein assailed Decision dated 30 April 2007, upon the following findings
and conclusions: (a) the Spouses Jaso validly acquired Biondo's share in
the business which had been transferred to and continued its operations
at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City and
not dissolved as claimed by the Spouses Realubit; (b) absent showing of
Josefina's knowledge and consent to the transfer of Biondo's share, Eden
cannot be considered as a partner in the business, pursuant to Article
1813 of the Civil Code of the Philippines; (c) while entitled to
Biondo's share in the profits of the business, Eden cannot, however,
interfere with the management of the partnership, require information
or account of its transactions and inspect its books; (d) the partnership
should first be dissolved before Eden can seek an accounting of its
transactions and demand Biondo's share in the business; and, (e) the
evidence adduced before the RTC do not support the award of moral
damages in favor of the Spouses Jaso.[12]

The Spouses Realubit's motion for reconsideration of the foregoing

decision was denied for lack of merit in the CA's 28 June 2007
Resolution,[13] hence, this petition.

The Issues

The Spouses Realubit urge the reversal of the assailed decision upon the
negative of the following issues, to wit:

A. WHETHER OR NOT THERE WAS A VALID

ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE.

B. WHETHER THE COURT MAY ORDER PETITIONER

[JOSEFINA REALUBIT] AS PARTNER IN THE JOINT
VENTURE TO RENDER [A]N ACCOUNTING TO ONE
WHO IS NOT A PARTNER IN SAID JOINT
VENTURE.

C. WHETHER PRIVATE RESPONDENTS [SPOUSES

JASO] HAVE ANY RIGHT IN THE JOINT VENTURE
AND IN THE SEPARATE ICE BUSINESS OF
PETITIONER[S].[14]

The Court's Ruling

We find the petition bereft of merit.

The Spouses Realubit argue that, in upholding its validity, both the RTC
and the CA inordinately gave premium to the notarization of the 27 June
1997 Deed of Assignment executed by Biondo in favor of the Spouses
Jaso. Calling attention to the latter's failure to present before the RTC
said assignor or, at the very least, the witnesses to said document, the
Spouses Realubit maintain that the testimony of Rolando Diaz, the
Notary Public before whom the same was acknowledged, did not suffice
to establish its authenticity and/or validity. They insist that notarization
did not automatically and conclusively confer validity on said deed, since
it is still entirely possible that Biondo did not execute said deed or, for
that matter, appear before said notary public.[15] The dearth of merit in
the Spouses Realubit's position is, however, immediately evident from
the settled rule that documents acknowledged before notaries public are
public documents which are admissible in evidence without necessity of
17
preliminary proof as to their authenticity and due execution.[16]

It cannot be gainsaid that, as a public document, the Deed of

Assignment Biondo executed in favor of Eden not only enjoys a
presumption of regularity[17] but is also considered prima facie evidence
of the facts therein stated.[18] A party assailing the authenticity and due
execution of a notarized document is, consequently, required to present
evidence that is clear, convincing and more than merely
preponderant.[19] In view of the Spouses Realubit's failure to discharge
this onus, we find that both the RTC and the CA correctly upheld the
authenticity and validity of said Deed of Assignment upon the combined
strength of the above-discussed disputable presumptions and the
testimonies elicited from Eden[20] and Notary Public Rolando Diaz.[21] As
for the Spouses' Realubit's bare assertion that Biondo's signature on the
same document appears to be forged, suffice it to say that, like
fraud,[22] forgery is never presumed and must likewise be proved by
clear and convincing evidence by the party alleging the same.[23] Aside
from not being borne out by a comparison of Biondo's signatures on
the Joint Venture Agreement[24] and the Deed of Assignment,[25] said
forgery is, moreover debunked by Biondo's duly authenticated
certification dated 17 November 1998, confirming the transfer of his
interest in the business in favor of Eden.[26]

Generally understood to mean an organization formed for some

temporary purpose, a joint venture is likened to a particular partnership
or one which "has for its object determinate things, their use or fruits, or
a specific undertaking, or the exercise of a profession or
vocation."[27] The rule is settled that joint ventures are governed by the
law on partnerships[28] which are, in turn, based on mutual agency
or delectus personae.[29] Insofar as a partner's conveyance of the
entirety of his interest in the partnership is concerned, Article 1813 of
the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the

partnership does not itself dissolve the partnership, or, as against the
other partners in the absence of agreement, entitle the assignee, during
the continuance of the partnership, to interfere in the management or
administration of the partnership business or affairs, or to require any
information or account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive in
accordance with his contracts the profits to which the assigning partners
would otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of the
usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to

receive his assignor's interest and may require an account from the date
only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that "(t)he transfer by a

partner of his partnership interest does not make the assignee of such
interest a partner of the firm, nor entitle the assignee to interfere in the
management of the partnership business or to receive anything except
the assignee's profits. The assignment does not purport to transfer an
interest in the partnership, but only a future contingent right to a
portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital."[30] Since a
partner's interest in the partnership includes his share in the
profits,[31] we find that the CA committed no reversible error in ruling
that the Spouses Jaso are entitled to Biondo's share in the profits,
despite Juanita's lack of consent to the assignment of said Frenchman's
interest in the joint venture. Although Eden did not, moreover, become
a partner as a consequence of the assignment and/or acquire the right
to require an accounting of the partnership business, the CA correctly
granted her prayer for dissolution of the joint venture conformably with
the right granted to the purchaser of a partner's interest under Article
1831 of the Civil Code.[32]

Considering that they involve questions of fact, neither are we inclined

to hospitably entertain the Spouses Realubit's insistence on the
supposed fact that Josefina's joint venture with Biondo had already been
dissolved and that the ice manufacturing business at 66-C Cenacle
Drive, Sanville Subdivision, Project 6, Quezon City was merely a
continuation of the same business they previously operated under a
single proprietorship. It is well-entrenched doctrine that questions of
fact are not proper subjects of appeal by certiorari under Rule 45 of the
Rules of Court as this mode of appeal is confined to questions of
law.[33] Upon the principle that this Court is not a trier of facts, we are
not duty bound to examine the evidence introduced by the parties below
to determine if the trial and the appellate courts correctly assessed and
18
evaluated the evidence on record.[34] Absent showing that the factual
findings complained of are devoid of support by the evidence on record
or the assailed judgment is based on misapprehension of facts, the
Court will limit itself to reviewing only errors of law.[35]

Based on the evidence on record, moreover, both the RTC[36] and the
CA[37] ruled out the dissolution of the joint venture and concluded that
the ice manufacturing business at the aforesaid address was the same
one established by Juanita and Biondo. As a rule, findings of fact of the
CA are binding and conclusive upon this Court,[38] and will not be
reviewed or disturbed on appeal[39] unless the case falls under any of the
following recognized exceptions: (1) when the conclusion is a finding
grounded entirely on speculation, surmises and conjectures; (2) when
the inference made is manifestly mistaken, absurd or impossible; (3)
where there is a grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the CA, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of
the trial court; (8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioners' main and reply
briefs are not disputed by the respondents; and, (10) when the findings
of fact of the CA are premised on the supposed absence of evidence and
contradicted by the evidence on record.[40] Unfortunately for the
Spouses Realubit's cause, not one of the foregoing exceptions applies to
the case.

WHEREFORE, the petition is DENIED for lack of merit and the assailed
CA Decision dated 30 April 2007 is, accordingly, AFFIRMED in toto.

SO ORDERED.

Velasco, Jr.,* Brion,** (Acting Chairperson), Abad,*** and Sereno,

JJ., concur.

Endnotes:

*
Associate Justice Presbitero J. Velasco, Jr. is designated Additional
Member as per Special Order No. 1084 dated 13 September 2011.

**
Associate Justice Arturo D. Brion is designated as Acting Chairperson
per Special Order No. 1083 dated 13 September 2011.

***
Associate Justice Roberto A. Abad is designated Additional Member
per Raffle dated 19 September 2011.

[1]
Rollo, pp. 8-17, Realubit's 9 August 2007 Petition.

[2]
Penned by Justice Apolinario D. Bruselas, Jr. and concurred in by
Justices Bienvenido L. Reyes and Aurora Santiago-Lagman

Record, CA-G.R. CV No. 178782, CA's 30 April 2007 Decision, pp.

[3]

124-134.

[4]
Id. at 133.

[5]
Exhibits "B" and "1," record, Civil Case No. 98-0331, 17 March 1994
Joint Venture Agreement, p. 210.

[6]
Exhibits "A" and "2," 27 June 1997 Deed of Assignment, id. at 207.

[7]
Exhibit "C," 19 February 1998 Demand Letter, id. at 211.

[8]
Spouses Jaso's 3 August 1998 Complaint, id. at 2-7.

[9]
Spouses Realubit's 21 October 1998 Answer, id. at 24-32.

[10]
RTC's 17 September 2001 Decision, id at 427-431.

[11]
Id. at 431.

CA rollo, CA-G.R. C.V. No. 73861, CA's 30 April 2007 Decision, pp.
[12]

124-134.

[13]
Id. at 177-178.

[14]
Rollo, pp. 11-13.

19
[15]
Id. at 131-133.

[16]
Cavile v. Heirs of Clarita Cavile, 448 Phil. 302, 315 (2003).

[17]
Potenciano v. Reynoso, 449 Phil. 396, 408 (2003).

[18]
Spouses Caoili v. Court of Appeals, 373 Phil. 122, 139 (1999).

[19]
Manongsong v. Estimo, 452 Phil. 862, 877-878 (2003).

[20]
TSN, 22 September 1999, pp. 3-5.

[21]
TSN, 12 January 2000, pp. 4-8.

[22]
Maestrado v. Court of Appeals, 384 Phil. 418, 435 (2000).

[23]
Aloria v. Clemente, 518 Phil. 764, 776 (2006).

[24]
Exhibit "1-A," record, Civil Case No. 98-0331, p. 210.

[25]
Exhibits "A-3" and "2-A," id. at 207.

[26]
Exhibit "D-1," id. at 215.

[27]
Art. 1783, Civil Code of the Philippines.

[28]
Heirs of Tan Eng Kee v. Court of Appeals, 396 Phil. 68, 80-81(2000).

[29]
Tocao v. Court of Appeals, 396 Phil. 166, 184 (2000).

Tolentino, Civil Code of the Philippines, 1959 ed., Vol. V, pp. 297-
[30]

298.

[31]
Art. 1812, Civil Code of the Philippines.

[32]
Art. 1831. On application by or for a partner, the court shall decree a
dissolution x x x

xxx

On the application of the purchaser of a partner's interest under Article

1813 or 1814:

(1) After the termination of the specified term or particular undertaking;

(2) At any time if the partnership was a partnership at will when the
interest was assigned or when the charging order was issued.

[33]
Goyena v. Ledesma-Gustilo, 443 Phil. 150, 158 (2003).

[34]
Romualdez-Licaros v. Licaros, 449 Phil. 824, 837 (2003).

[35]
Tsai v. Court of Appeals, 418 Phil. 606, 617 (2001).

[36]
Record, Civil Case No. 98-0331, p. 430.

[37]
Record, CA-G.R. CV No. 73861, pp. 163-164.

[38]
Spouses Batingal v. Court of Appeals, 403 Phil. 780, 788 (2001)

[39]
Bank of the Phil. Islands v. Leobrera, 461 Phil. 461, 465 (2003).

Spouses Sevilla v. Court of Appeals, G.R. No. 150284, 22 November

[40]

2010, 635 SCRA 508, 514-515.

20
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn
out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an
inventory of real property will not ipso facto release the contracting partners from their respective obligations to each
other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of Appeals 2 (CA) in
CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the
ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against
the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are
likewise ordered dismissed. No pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his
name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the development of the subdivision. 4 All three of them also agreed to
share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add
that respondent used the loan not for the development of the subdivision, but in furtherance of his own company,
Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he
was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of
the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs
and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing
units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of
P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had
separately caused the annotations of adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him
to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the
trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for
further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the
CA.

21
Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for
the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement
that losses as well as profits in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil
Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion
to what he may have contributed, but the industrial partner shall not be liable for the losses. As for
the profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright
the provision of Article 1769, and other related provisions of the Civil Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

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

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

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969,
by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at
Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained
the respective parties hereto do hereby stipulate and agree as follows:
22
 ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the
amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50)
Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount
of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and
this particular amount will serve as an advance payment from the FIRST PARTY for the property
mentioned to be sub-divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the
principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, until the sub-division project is terminated and ready for sale to any interested parties, and
the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be
paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after
the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the
SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally according to the . . . percentage
[agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property
mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary
improvements spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to
turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and
voluntarily for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to
Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land
which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount
needed for general expenses and other costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a
partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to
facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he
developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost
housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but
also to all necessary consequences thereof, as follows:

23
 Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract
they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and
insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the
contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their
obligations. They cannot now disavow the relationship formed from such agreement due to their supposed
misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public
instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real
property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino
states that under the aforecited provision which is a complement of Article 1771, 12 "The execution of a public
instrument would be useless if there is no inventory of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such
inventory is made." The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should
pay them 60 percent of the value of the property. 13 They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in
regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement
an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

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

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

In this case, the cause of the contract of sale 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. As explained by the
trial court, "the land was in effect given to the partnership as [petitioner's] participation therein. . . . There was
therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into
fruition, they [would] get sixty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he
should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the
profits under the Joint Venture Agreement.

24
We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the
project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him
of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this
doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED

Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

Footnotes

1 Penned by Justice Ramon U. Mabutas Jr.; concurred in by Justices Emeterio C. Cui, Division chairman,
and Hilarion L. Aquino, member.

2 Second Division.

3 CA Decision, p. 1; rollo, p. 15.

4 CA Decision, p. 2; rollo, p. 16.

5 CA Decision, p. 3; rollo, p. 17.

6 The case was deemed submitted for resolution on September 15, 1999, upon receipt by the Court of the
respective Memoranda of the respondent and the petitioners.

7 CA Decision, p. 32; rollo, p. 46.

8 Petition, p. 2; rollo, p. 10.

9 Petitioners' Memorandum, pp. 6-7; rollo, pp. 82-83.

10 CA Decision, pp. 5-6; rollo, pp. 19-20.

11 Jo Chung Cang v. Pacific Commercial Co., 45 Phil. 142, September 6, 1923.

12 Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.

13 Petitioners' Memorandum, pp. 6-7; rollo, pp. 82-83.

14 Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.

15 Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation
or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.

16 CA Decision, p. 20; rollo, p. 34.

17 Ibid., p. 28; rollo, p. 42.

18 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.

25
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 175885 February 13, 2009

ZENAIDA G. MENDOZA, Petitioner,

vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION ADMINISTRATION
(NIA MUÑOZ, NUEVA ECIJA), Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 176271 February 13, 2009

MANUEL DELA CRUZ Petitioner,

vs.
ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION ADMINISTRATION
(NIA MUÑOZ, NUEVA ECIJA), Respondents.

DECISION

YNARES-SANTIAGO, J.:

These consolidated petitions assail the August 28, 2006 Decision1 of the Court of Appeals in CA-G.R. CV No. 80819
dismissing the complaint in Civil Case No. 18-SD (2000),2 and its December 11, 2006 Resolution3 denying the
herein petitioners’ motion for reconsideration.

Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule Construction and Trading (EMPCT). On May
24, 1999, PAULE executed a special power of attorney (SPA) authorizing Zenaida G. Mendoza (MENDOZA) to
participate in the pre-qualification and bidding of a National Irrigation Administration (NIA) project and to represent
him in all transactions related thereto, to wit:

1. To represent E.M. PAULE CONSTRUCTION & TRADING of which I (PAULE) am the General Manager in
all my business transactions with National Irrigation Authority, Muñoz, Nueva Ecija.

2. To participate in the bidding, to secure bid bonds and other documents pre-requisite in the bidding of
Casicnan Multi-Purpose Irrigation and Power Plant (CMIPPL 04-99), National Irrigation Authority, Muñoz,
Nueva Ecija.

3. To receive and collect payment in check in behalf of E.M. PAULE CONSTRUCTION & TRADING.

4. To do and perform such acts and things that may be necessary and/or required to make the herein
authority effective.4

On September 29, 1999, EMPCT, through MENDOZA, participated in the bidding of the NIA-Casecnan Multi-
Purpose Irrigation and Power Project (NIA-CMIPP) and was awarded Packages A-10 and B-11 of the NIA-CMIPP
Schedule A. On November 16, 1999, MENDOZA received the Notice of Award which was signed by Engineer
Alexander M. Coloma (COLOMA), then Acting Project Manager for the NIA-CMIPP. Packages A-10 and B-11
involved the construction of a road system, canal structures and drainage box culverts with a project cost of
P5,613,591.69.

When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of heavy equipment for use in the NIA project,
he met up with MENDOZA in Bayuga, Muñoz, Nueva Ecija, in an apartment where the latter was holding office
under an EMPCT signboard. A series of meetings followed in said EMPCT office among CRUZ, MENDOZA and
PAULE.

On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job Orders/Agreements5 for the lease of the
latter’s heavy equipment (dump trucks for hauling purposes) to EMPCT.

On April 27, 2000, PAULE revoked6 the SPA he previously issued in favor of MENDOZA; consequently, NIA refused
to make payment to MENDOZA on her billings. CRUZ, therefore, could not be paid for the rent of the equipment.
Upon advice of MENDOZA, CRUZ addressed his demands for payment of lease rentals directly to NIA but the latter

26
refused to acknowledge the same and informed CRUZ that it would be remitting payment only to EMPCT as the
winning contractor for the project.

In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or EMPCT payment of the outstanding rentals
which amounted to P726,000.00 as of March 31, 2000.

On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch 37 of the Regional Trial Court of Nueva
Ecija, for collection of sum of money with damages and a prayer for the issuance of a writ of preliminary injunction
against PAULE, COLOMA and the NIA. PAULE in turn filed a third-party complaint against MENDOZA, who filed her
answer thereto, with a cross-claim against PAULE.

MENDOZA alleged in her cross-claim that because of PAULE’s "whimsical revocation" of the SPA, she was barred
from collecting payments from NIA, thus resulting in her inability to fund her checks which she had issued to
suppliers of materials, equipment and labor for the project. She claimed that estafa and B.P. Blg. 22 cases were
filed against her; that she could no longer finance her children’s education; that she was evicted from her home; that
her vehicle was foreclosed upon; and that her reputation was destroyed, thus entitling her to actual and moral
damages in the respective amounts of P3 million and P1 million.

Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as his attorney-in-fact –

1. To represent me (PAULE), in my capacity as General Manager of the E.M. PAULE CONSTRUCTION

AND TRADING, in all meetings, conferences and transactions exclusively for the construction of the projects
known as Package A-10 of Schedule A and Package No. B-11 Schedule B, which are 38.61% and 63.18%
finished as of June 21, 2000, per attached Accomplishment Reports x x x;

2. To implement, execute, administer and supervise the said projects in whatever stage they are in as of to
date, to collect checks and other payments due on said projects and act as the Project Manager for E.M.
PAULE CONSTRUCTION AND TRADING;

3. To do and perform such acts and things that may be necessary and required to make the herein power
and authority effective.7

At the pre-trial conference, the other parties were declared as in default and CRUZ was allowed to present his
evidence ex parte. Among the witnesses he presented was MENDOZA, who was impleaded as defendant in
PAULE’s third-party complaint.

On March 6, 2003, MENDOZA filed a motion to declare third-party plaintiff PAULE non-suited with prayer that she
be allowed to present her evidence ex parte.

However, without resolving MENDOZA’s motion to declare PAULE non-suited, and without granting her the
opportunity to present her evidence ex parte, the trial court rendered its decision dated August 7, 2003, the
dispositive portion of which states, as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:

1. Ordering defendant Paule to pay the plaintiff the sum of P726,000.00 by way of actual damages or
compensation for the services rendered by him;

2. Ordering defendant Paule to pay plaintiff the sum of P500,000.00 by way of moral damages;

3. Ordering defendant Paule to pay plaintiff the sum of P50,000.00 by way of reasonable attorney’s fees;

4. Ordering defendant Paule to pay the costs of suit; and

5. Ordering defendant National Irrigation Administration (NIA) to withhold the balance still due from it to
defendant Paule/E.M. Paule Construction and Trading under NIA-CMIPP Contract Package A-10 and to pay
plaintiff therefrom to the extent of defendant Paule’s liability herein adjudged.

SO ORDERED.8

In holding PAULE liable, the trial court found that MENDOZA was duly constituted as EMPCT’s agent for purposes
of the NIA project and that MENDOZA validly contracted with CRUZ for the rental of heavy equipment that was to be
used therefor. It found unavailing PAULE’s assertion that MENDOZA merely borrowed and used his contractor’s
license in exchange for a consideration of 3% of the aggregate amount of the project. The trial court held that
through the SPAs he executed, PAULE clothed MENDOZA with apparent authority and held her out to the public as
his agent; as principal, PAULE must comply with the obligations which MENDOZA contracted within the scope of
27
her authority and for his benefit. Furthermore, PAULE knew of the transactions which MENDOZA entered into since
at various times when she and CRUZ met at the EMPCT office, PAULE was present and offered no objections. The
trial court declared that it would be unfair to allow PAULE to enrich himself and disown his acts at the expense of
CRUZ.

PAULE and MENDOZA both appealed the trial court’s decision to the Court of Appeals.

PAULE claimed that he did not receive a copy of the order of default; that it was improper for MENDOZA, as third-
party defendant, to have taken the stand as plaintiff CRUZ’s witness; and that the trial court erred in finding that an
agency was created between him and MENDOZA, and that he was liable as principal thereunder.

On the other hand, MENDOZA argued that the trial court erred in deciding the case without affording her the
opportunity to present evidence on her cross-claim against PAULE; that, as a result, her cross-claim against PAULE
was not resolved, leaving her unable to collect the amounts of P3,018,864.04, P500,000.00, and P839,450.88 which
allegedly represent the unpaid costs of the project and the amount PAULE received in excess of payments made by
NIA.

On August 28, 2006, the Court of Appeals rendered the assailed Decision which dismissed CRUZ’s complaint, as
well as MENDOZA’s appeal. The appellate court held that the SPAs issued in MENDOZA’s favor did not grant the
latter the authority to enter into contract with CRUZ for hauling services; the SPAs limit MENDOZA’s authority to
only represent EMPCT in its business transactions with NIA, to participate in the bidding of the project, to receive
and collect payment in behalf of EMPCT, and to perform such acts as may be necessary and/or required to make
the said authority effective. Thus, the engagement of CRUZ’s hauling services was done beyond the scope of
MENDOZA’s authority.

As for CRUZ, the Court of Appeals held that he knew the limits of MENDOZA’s authority under the SPAs yet he still
transacted with her. Citing Manila Memorial Park Cemetery, Inc. v. Linsangan,9 the appellate court declared that the
principal (PAULE) may not be bound by the acts of the agent (MENDOZA) where the third person (CRUZ)
transacting with the agent knew that the latter was acting beyond the scope of her power or authority under the
agency.

With respect to MENDOZA’s appeal, the Court of Appeals held that when the trial court rendered judgment, not only
did it rule on the plaintiff’s complaint; in effect, it resolved the third-party complaint as well;10 that the trial court
correctly dismissed the cross-claim and did not unduly ignore or disregard it; that MENDOZA may not claim, on
appeal, the amounts of P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the unpaid costs
of the project and the amount PAULE received in excess of payments made by NIA, as these are not covered by
her cross-claim in the court a quo, which seeks reimbursement only of the amounts of P3 million and P1 million,
respectively, for actual damages (debts to suppliers, laborers, lessors of heavy equipment, lost personal property)
and moral damages she claims she suffered as a result of PAULE’s revocation of the SPAs; and that the revocation
of the SPAs is a prerogative that is allowed to PAULE under Article 192011 of the Civil Code.

CRUZ and MENDOZA’s motions for reconsideration were denied; hence, these consolidated petitions:

G.R. No. 175885 (MENDOZA PETITION)

a) The Court of Appeals erred in sustaining the trial court’s failure to resolve her motion praying that PAULE
be declared non-suited on his third-party complaint, as well as her motion seeking that she be allowed to
present evidence ex parte on her cross-claim;

b) The Court of Appeals erred when it sanctioned the trial court’s failure to resolve her cross-claim against
PAULE; and,

c) The Court of Appeals erred in its application of Article 1920 of the Civil Code, and in adjudging that
MENDOZA had no right to claim actual damages from PAULE for debts incurred on account of the SPAs
issued to her.

G.R. No. 176271 (CRUZ PETITION)

CRUZ argues that the decision of the Court of Appeals is contrary to the provisions of law on agency, and conflicts
with the Resolution of the Court in G.R. No. 173275, which affirmed the Court of Appeals’ decision in CA-G.R. CV
No. 81175, finding the existence of an agency relation and where PAULE was declared as MENDOZA’s principal
under the subject SPAs and, thus, liable for obligations (unpaid construction materials, fuel and heavy equipment
rentals) incurred by the latter for the purpose of implementing and carrying out the NIA project awarded to EMPCT.

CRUZ argues that MENDOZA was acting within the scope of her authority when she hired his services as hauler of
debris because the NIA project (both Packages A-10 and B-11 of the NIA-CMIPP) consisted of construction of canal
structures, which involved the clearing and disposal of waste, acts that are necessary and incidental to PAULE’s
28
obligation under the NIA project; and that the decision in a civil case involving the same SPAs, where PAULE was
found liable as MENDOZA’s principal already became final and executory; that in Civil Case No. 90-SD filed by
MENDOZA against PAULE,12 the latter was adjudged liable to the former for unpaid rentals of heavy equipment and
for construction materials which MENDOZA obtained for use in the subject NIA project. On September 15, 2003,
judgment was rendered in said civil case against PAULE, to wit:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff (MENDOZA) and against the defendant
(PAULE) as follows:

1. Ordering defendant Paule to pay plaintiff the sum of P138,304.00 representing the obligation incurred by
the plaintiff with LGH Construction;

2. Ordering defendant Paule to pay plaintiff the sum of P200,000.00 representing the balance of the
obligation incurred by the plaintiff with Artemio Alejandrino;

3. Ordering defendant Paule to pay plaintiff the sum of P520,000.00 by way of moral damages, and further
sum of P100,000.00 by way of exemplary damages;

4. Ordering defendant Paule to pay plaintiff the sum of P25,000.00 as for attorney’s fees; and

5. To pay the cost of suit.13

PAULE appealed14 the above decision, but it was dismissed by the Court of Appeals in a Decision15 which reads, in
part:

As to the finding of the trial court that the principle of agency is applicable in this case, this Court agrees therewith. It
must be emphasized that appellant (PAULE) authorized appellee (MENDOZA) to perform any and all acts
necessary to make the business transaction of EMPCT with NIA effective. Needless to state, said business
transaction pertained to the construction of canal structures which necessitated the utilization of construction
materials and equipments. Having given said authority, appellant cannot be allowed to turn its back on the
1avv phi 1

transactions entered into by appellee in behalf of EMPCT.

The amount of moral damages and attorney’s fees awarded by the trial court being justifiable and commensurate to
the damage suffered by appellee, this Court shall not disturb the same. It is well-settled that the award of damages
as well as attorney’s fees lies upon the discretion of the court in the context of the facts and circumstances of each
case.

WHEREFORE, the appeal is DISMISSED and the appealed Decision is AFFIRMED.

SO ORDERED.16

PAULE filed a petition to this Court docketed as G.R. No. 173275 but it was denied with finality on September 13,
2006.

MENDOZA, for her part, claims that she has a right to be heard on her cause of action as stated in her cross-claim
against PAULE; that the trial court’s failure to resolve the cross-claim was a violation of her constitutional right to be
apprised of the facts or the law on which the trial court’s decision is based; that PAULE may not revoke her
appointment as attorney-in-fact for and in behalf of EMPCT because, as manager of their partnership in the NIA
project, she was obligated to collect from NIA the funds to be used for the payment of suppliers and contractors with
whom she had earlier contracted for labor, materials and equipment.

PAULE, on the other hand, argues in his Comment that MENDOZA’s authority under the SPAs was for the limited
purpose of securing the NIA project; that MENDOZA was not authorized to contract with other parties with regard to
the works and services required for the project, such as CRUZ’s hauling services; that MENDOZA acted beyond her
authority in contracting with CRUZ, and PAULE, as principal, should not be made civilly liable to CRUZ under the
SPAs; and that MENDOZA has no cause of action against him for actual and moral damages since the latter
exceeded her authority under the agency.

We grant the consolidated petitions.

Records show that PAULE (or, more appropriately, EMPCT) and MENDOZA had entered into a partnership in
regard to the NIA project. PAULE‘s contribution thereto is his contractor’s license and expertise, while MENDOZA
would provide and secure the needed funds for labor, materials and services; deal with the suppliers and sub-
contractors; and in general and together with PAULE, oversee the effective implementation of the project. For this,
PAULE would receive as his share three per cent (3%) of the project cost while the rest of the profits shall go to
MENDOZA. PAULE admits to this arrangement in all his pleadings.17

29
Although the SPAs limit MENDOZA’s authority to such acts as representing EMPCT in its business transactions with
NIA, participating in the bidding of the project, receiving and collecting payment in behalf of EMPCT, and performing
other acts in furtherance thereof, the evidence shows that when MENDOZA and CRUZ met and discussed (at the
EMPCT office in Bayuga, Muñoz, Nueva Ecija) the lease of the latter’s heavy equipment for use in the project,
PAULE was present and interposed no objection to MENDOZA’s actuations. In his pleadings, PAULE does not even
deny this. Quite the contrary, MENDOZA’s actions were in accord with what she and PAULE originally agreed upon,
as to division of labor and delineation of functions within their partnership. Under the Civil Code, every partner is an
agent of the partnership for the purpose of its business;18 each one may separately execute all acts of
administration, unless a specification of their respective duties has been agreed upon, or else it is stipulated that any
one of them shall not act without the consent of all the others.19 At any rate, PAULE does not have any valid cause
for opposition because his only role in the partnership is to provide his contractor’s license and expertise, while the
sourcing of funds, materials, labor and equipment has been relegated to MENDOZA.

Moreover, it does not speak well for PAULE that he reinstated MENDOZA as his attorney-in-fact, this time with
broader powers to implement, execute, administer and supervise the NIA project, to collect checks and other
payments due on said project, and act as the Project Manager for EMPCT, even after CRUZ has already filed his
complaint. Despite knowledge that he was already being sued on the SPAs, he proceeded to execute another in
MENDOZA’s favor, and even granted her broader powers of administration than in those being sued upon. If he
truly believed that MENDOZA exceeded her authority with respect to the initial SPA, then he would not have issued
another SPA. If he thought that his trust had been violated, then he should not have executed another SPA in favor
of MENDOZA, much less grant her broader authority.

Given the present factual milieu, CRUZ has a cause of action against PAULE and MENDOZA. Thus, the Court of
Appeals erred in dismissing CRUZ’s complaint on a finding of exceeded agency. Besides, that PAULE could be held
liable under the SPAs for transactions entered into by MENDOZA with laborers, suppliers of materials and services
for use in the NIA project, has been settled with finality in G.R. No. 173275. What has been adjudged in said case
as regards the SPAs should be made to apply to the instant case. Although the said case involves different parties
and transactions, it finally disposed of the matter regarding the SPAs – specifically their effect as among PAULE,
MENDOZA and third parties with whom MENDOZA had contracted with by virtue of the SPAs – a disposition that
should apply to CRUZ as well. If a particular point or question is in issue in the second action, and the judgment will
depend on the determination of that particular point or question, a former judgment between the same parties or
their privies will be final and conclusive in the second if that same point or question was in issue and adjudicated in
the first suit. Identity of cause of action is not required but merely identity of issues.20

There was no valid reason for PAULE to revoke MENDOZA’s SPAs. Since MENDOZA took care of the funding and
sourcing of labor, materials and equipment for the project, it is only logical that she controls the finances, which
means that the SPAs issued to her were necessary for the proper performance of her role in the partnership, and to
discharge the obligations she had already contracted prior to revocation. Without the SPAs, she could not collect
from NIA, because as far as it is concerned, EMPCT – and not the PAULE-MENDOZA partnership – is the entity it
had contracted with. Without these payments from NIA, there would be no source of funds to complete the project
and to pay off obligations incurred. As MENDOZA correctly argues, an agency cannot be revoked if a bilateral
contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and his removal from the management is unjustifiable.21

PAULE’s revocation of the SPAs was done in evident bad faith. Admitting all throughout that his only entitlement in
the partnership with MENDOZA is his 3% royalty for the use of his contractor’s license, he knew that the rest of the
amounts collected from NIA was owing to MENDOZA and suppliers of materials and services, as well as the
laborers. Yet, he deliberately revoked MENDOZA’s authority such that the latter could no longer collect from NIA the
amounts necessary to proceed with the project and settle outstanding obligations. lawphil.net

From the way he conducted himself, PAULE committed a willful and deliberate breach of his contractual duty to his
partner and those with whom the partnership had contracted. Thus, PAULE should be made liable for moral
damages.

Bad faith does not simply connote bad judgment or negligence; it imputes a dishonest purpose or some moral
obliquity and conscious doing of a wrong; a breach of a sworn duty through some motive or intent or ill-will; it
partakes of the nature of fraud (Spiegel v. Beacon Participation, 8 NE 2nd Series, 895, 1007). It contemplates a
state of mind affirmatively operating with furtive design or some motive of self-interest or ill will for ulterior purposes
(Air France v. Carrascoso, 18 SCRA 155, 166-167). Evident bad faith connotes a manifest deliberate intent on the
part of the accused to do wrong or cause damage.22

Moreover, PAULE should be made civilly liable for abandoning the partnership, leaving MENDOZA to fend for her
own, and for unduly revoking her authority to collect payments from NIA, payments which were necessary for the
settlement of obligations contracted for and already owing to laborers and suppliers of materials and equipment like
CRUZ, not to mention the agreed profits to be derived from the venture that are owing to MENDOZA by reason of
their partnership agreement. Thus, the trial court erred in disregarding and dismissing MENDOZA’s cross-claim –
which is properly a counterclaim, since it is a claim made by her as defendant in a third-party complaint – against

30
PAULE, just as the appellate court erred in sustaining it on the justification that PAULE’s revocation of the SPAs
was within the bounds of his discretion under Article 1920 of the Civil Code.

Where the defendant has interposed a counterclaim (whether compulsory or permissive) or is seeking affirmative
relief by a cross-complaint, the plaintiff cannot dismiss the action so as to affect the right of the defendant in his
counterclaim or prayer for affirmative relief. The reason for that exception is clear. When the answer sets up an
independent action against the plaintiff, it then becomes an action by the defendant against the plaintiff, and, of
course, the plaintiff has no right to ask for a dismissal of the defendant’s action. The present rule embodied in
Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil Procedure ordains a more equitable disposition of the
counterclaims by ensuring that any judgment thereon is based on the merit of the counterclaim itself and not on the
survival of the main complaint. Certainly, if the counterclaim is palpably without merit or suffers jurisdictional flaws
which stand independent of the complaint, the trial court is not precluded from dismissing it under the amended
rules, provided that the judgment or order dismissing the counterclaim is premised on those defects. At the same
time, if the counterclaim is justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint.23

Notwithstanding the immutable character of PAULE’s liability to MENDOZA, however, the exact amount thereof is
yet to be determined by the trial court, after receiving evidence for and in behalf of MENDOZA on her counterclaim,
which must be considered pending and unresolved.

WHEREFORE, the petitions are GRANTED. The August 28, 2006 Decision of the Court of Appeals in CA-G.R. CV
No. 80819 dismissing the complaint in Civil Case No. 18-SD (2000) and its December 11, 2006 Resolution denying
the motion for reconsideration are REVERSED and SET ASIDE. The August 7, 2003 Decision of the Regional Trial
Court of Nueva Ecija, Branch 37 in Civil Case No. 18-SD (2000) finding PAULE liable is REINSTATED, with the
MODIFICATION that the trial court is ORDERED to receive evidence on the counterclaim of petitioner Zenaida G.
Mendoza.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

DIOSDADO M. PERALTA
Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

31
1 Rollo in G.R. No. 175885, pp. 44-58; penned by Associate Justice Myrna Dimaranan-Vidal and concurred
in by Associate Justices Bienvenido L. Reyes and Fernanda Lampas Peralta.

2Entitled "Manuel dela Cruz v. Engr. Eduardo Paule, Engr. Alexander Coloma and the National Irrigation
Administration (Muñoz, Nueva Ecija)."

3 Rollo in G.R. No. 175885, pp. 60-61.

4 Id. at 68.

5 Id. at 69

6 Id. at 71.

7Id. at 122; Special Power of Attorney executed by PAULE in favor of MENDOZA notarized on August 23,
2000.

8 Id. at 177.

9 G.R. No. 151319, November 22, 2004, 443 SCRA 377.

10Citing Firestone Tire and Rubber Company of the Philippines v. Tempongko, G.R. No. L-24399, March 28,
1969, 27 SCRA 418.

11Article 1920. The principal may revoke the agency at will, and compel the agent to return the document
evidencing the agency. Such revocation may be express or implied.

12 Instituted on August 15, 2001 with the RTC of Nueva Ecija, Branch 37.

13 Rollo in G.R. No. 176271, pp. 50-51.

14 Docketed as CA-G.R. CV No. 81175 and assigned to the Sixth Division of the Court of Appeals.

15Rollo in G.R. No. 176271. Dated December 12, 2005, and penned by Associate Justice Magdangal M. de
Leon and concurred in by Associate Justices Portia Aliño-Hormachuelos and Mariano C. del Castillo.

16 Id. at 57.

Rollo in G.R. No. 175885, pp. 84 and 110; PAULE’s Answer to the CRUZ Complaint, and his Third-Party
17

Complaint against MENDOZA.

18 Article 1818.

19 Article 1801.

Heirs of Clemencia Parasac v. Republic, G.R. No. 159910, May 4, 2006, 489 SCRA 498, 517-518, citing
20

Nabus v. Court of Appeals, G.R. No. 91670, February 7, 1991, 193 SCRA 732.

21
Id., Article 1927.

22 Canson v. Garchitorena, SB-99-9-J, July 28, 1999, 311 SCRA 268.

23 Pinga v. Heirs of German Santiago, G.R. No. 170354, June 30, 2006, 494 SCRA 393, 416; 421.

32
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 148187 April 16, 2008

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R. SP No.
49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April
3, 2001 Resolution3 denying the motion for reconsideration.

The facts of the case are as follows:

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4 with Baguio
Gold Mining Company ("Baguio Gold") for the former to manage and operate the latter’s mining claim, known as the
Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties’ agreement was denominated as "Power
of Attorney" and provided for the following terms:

4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the
MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from
time to time may be required by the MANAGERS within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall be
deemed, for internal audit purposes, as the owner’s account in the Sto. Nino PROJECT. Any part of any
income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT, shall be
added to such owner’s account.

5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto. Nino
PROJECT, in accordance with the following arrangements:

(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino
PROJECT as a special fund to be known as the MANAGERS’ account.

(b) The total of the MANAGERS’ account shall not exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in
cash shall be added to the MANAGERS’ account.

(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until
termination of this Agency.

(d) The MANAGERS’ account shall not accrue interest. Since it is the desire of the PRINCIPAL to
extend to the MANAGERS the benefit of subsequent appreciation of property, upon a projected
termination of this Agency, the ratio which the MANAGERS’ account has to the owner’s account will
be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE,
excluding the claims, shall be transferred to the MANAGERS, except that such transferred assets
shall not include mine development, roads, buildings, and similar property which will be valueless, or
of slight value, to the MANAGERS. The MANAGERS can, on the other hand, require at their option
that property originally transferred by them to the Sto. Nino PROJECT be re-transferred to them.
Until such assets are transferred to the MANAGERS, this Agency shall remain subsisting.

xxxx

12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino
PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT after
deduction therefrom of the MANAGERS’ compensation.

33
 xxxx

16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may
incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed as security
for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS and as
a means to fulfill the same. Therefore, this Agency shall be irrevocable while any obligation of the
PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in full, this Agency
shall be revocable by the PRINCIPAL upon 36-month notice to the MANAGERS.

17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to the
contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The
MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason alone of such withdrawal.
Paragraph 5(d) hereof shall be operative in case of the MANAGERS’ withdrawal.

x x x x5

In the course of managing and operating the project, Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years which
resulted to petitioner’s withdrawal as manager of the mine on January 28, 1982 and in the eventual cessation of
mine operations on February 20, 1982.6

Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment"7 wherein Baguio
Gold admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in three
segments by first assigning Baguio Gold’s tangible assets to petitioner, transferring to the latter Baguio Gold’s
equitable title in its Philodrill assets and finally settling the remaining liability through properties that Baguio Gold
may acquire in the future.

On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment"8 where the
parties determined that Baguio Gold’s indebtedness to petitioner actually amounted to P259,137,245.00, which sum
included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. These liabilities
pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America
NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its
tangible assets for P127,838,051.00 and then transferring its equitable title in its Philodrill assets for
P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to
petitioner in the amount of P114,996,768.00.

Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio
Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and P2,860,768.00 to the
1982 operations.

In its 1982 annual income tax return, petitioner deducted from its gross income the amount of P112,136,000.00 as
"loss on settlement of receivables from Baguio Gold against reserves and allowances."9 However, the Bureau of
Internal Revenue (BIR) disallowed the amount as deduction for bad debt and assessed petitioner a deficiency
income tax of P62,811,161.39.

Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt
deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year when it was determined to be worthless.

Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. The
bad debt deduction represented advances made by petitioner which, pursuant to the management contract, formed
part of Baguio Gold’s "pecuniary obligations" to petitioner. It also included payments made by petitioner as
guarantor of Baguio Gold’s long-term loans which legally entitled petitioner to be subrogated to the rights of the
original creditor.

Petitioner also asserted that due to Baguio Gold’s irreversible losses, it became evident that it would not be able to
recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless,
petitioner claimed that it was neither required to institute a judicial action for collection against the debtor nor to sell
or dispose of collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to
enforce collection and exhausted all reasonable means to collect.

On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and factual basis. It held that the alleged
debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for
bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that, under the
management contract, petitioner was to be paid fifty percent (50%) of the project’s net profit.10

34
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:

WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit.
The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent

Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-day grace period given by the respondent
within which petitioner has to pay the deficiency amount x x x up to actual date of payment.

SO ORDERED.11

The CTA rejected petitioner’s assertion that the advances it made for the Sto. Nino mine were in the nature of a
loan. It instead characterized the advances as petitioner’s investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed by
petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount partook of the nature
of an investment, it could not be deducted as a bad debt from petitioner’s gross income.

The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold could not
be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in default since its
loans were not yet due and demandable. What petitioner did was to pre-pay the loans as evidenced by the notice
sent by Bank of America showing that it was merely demanding payment of the installment and interests due.
Moreover, Citibank imposed and collected a "pre-termination penalty" for the pre-payment.

The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for
reconsideration,13 petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:

I.

The Court of Appeals erred in construing that the advances made by Philex in the management of the Sto.
Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a loan.

II.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine
indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding
the clear absence of any intent on the part of Philex and Baguio Gold to form a partnership.

III.

The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the
Compromise Agreement and the Amended Compromise Agreement when it construed the nature of the
advances made by Philex.

IV.

The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off.14

Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not only rely
on the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and "Amended
Compromise with Dation in Payment" that the parties executed in 1982. These documents, allegedly evinced the
parties’ intent to treat the advances and payments as a loan and establish a creditor-debtor relationship between
them.

The petition lacks merit.

The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the true
nature of the business relationship between petitioner and Baguio Gold. Before resort may be had to the two
compromise agreements, the parties’ contractual intent must first be discovered from the expressed language of the
primary contract under which the parties’ business relations were founded. It should be noted that the compromise
agreements were mere collateral documents executed by the parties pursuant to the termination of their business
relationship created under the "Power of Attorney". On the other hand, it is the latter which established the juridical
relation of the parties and defined the parameters of their dealings with one another.

35
The execution of the two compromise agreements can hardly be considered as a subsequent or contemporaneous
act that is reflective of the parties’ true intent. The compromise agreements were executed eleven years after the
"Power of Attorney" and merely laid out a plan or procedure by which petitioner could recover the advances and
payments it made under the "Power of Attorney". The parties entered into the compromise agreements as a
consequence of the dissolution of their business relationship. It did not define that relationship or indicate its real
character.

An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by the
parties. Under a contract of partnership, two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.15 While a corporation, like
petitioner, cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been
held that it may enter into a joint venture which is akin to a particular partnership:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for some temporary purpose. x x x It is in fact hardly
distinguishable from the partnership, since their elements are similar – community of interest in the
business, sharing of profits and losses, and a mutual right of control. x x x The main distinction cited by most
opinions in common law jurisdictions is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of
a temporary nature. x x x This observation is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a form of
partnership and should be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others. x x x (Citations
omitted) 16

Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to create a
partnership and establish a common fund for the purpose. They also had a joint interest in the profits of the business
as shown by a 50-50 sharing in the income of the mine.

Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and industry to
the common fund known as the Sto. Niño mine.17 In this regard, we note that there is a substantive equivalence in
the respective contributions of the parties to the development and operation of the mine. Pursuant to paragraphs 4
and 5 of the agreement, petitioner and Baguio Gold were to contribute equally to the joint venture assets under their
respective accounts. Baguio Gold would contribute P11M under its owner’s account plus any of its income that is left
in the project, in addition to its actual mining claim. Meanwhile, petitioner’s contribution would consist of
its expertise in the management and operation of mines, as well as the manager’s account which is comprised
of P11M in funds and property and petitioner’s "compensation" as manager that cannot be paid in cash.

However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold because it
did not "bind" itself to contribute money or property to the project; that under paragraph 5 of the agreement, it was
only optional for petitioner to transfer funds or property to the Sto. Niño project "(w)henever the MANAGERS shall
deem it necessary and convenient in connection with the MANAGEMENT of the STO. NIÑO MINE."18

The wording of the parties’ agreement as to petitioner’s contribution to the common fund does not detract from the
fact that petitioner transferred its funds and property to the project as specified in paragraph 5, thus rendering
effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner from withdrawing
the advances until termination of the parties’ business relations. As can be seen, petitioner became bound by its
contributions once the transfers were made. The contributions acquired an obligatory nature as soon as petitioner
had chosen to exercise its option under paragraph 5.

There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) against withdrawal of advances should
not be taken as an indication that it had entered into a partnership with Baguio Gold; that the stipulation only showed
that what the parties entered into was actually a contract of agency coupled with an interest which is not revocable
at will and not a partnership.

In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an
interest of a third party that depends upon it, or the mutual interest of both principal and agent.19 In this case, the
non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner who is
supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that
the parties’ relation under the agreement is one of agency coupled with an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of
agency and not a partnership. Although the said provision states that "this Agency shall be irrevocable while any
obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account," it

36
does not necessarily follow that the parties entered into an agency contract coupled with an interest that cannot be
withdrawn by Baguio Gold.

It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of petitioner
to contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and
Baguio Gold, in which the former was to manage and operate the latter’s mine through the parties’ mutual
contribution of material resources and industry. The essence of an agency, even one that is coupled with interest, is
the agent’s ability to represent his principal and bring about business relations between the latter and third
persons.20 Where representation for and in behalf of the principal is merely incidental or necessary for the proper
discharge of one’s paramount undertaking under a contract, the latter may not necessarily be a contract of agency,
but some other agreement depending on the ultimate undertaking of the parties.21

In this case, the totality of the circumstances and the stipulations in the parties’ agreement indubitably lead to the
conclusion that a partnership was formed between petitioner and Baguio Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner
under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties’ business relations, "the
ratio which the MANAGER’S account has to the owner’s account will be determined, and the corresponding
proportion of the entire assets of the STO. NINO MINE, excluding the claims" shall be transferred to petitioner.22 As
pointed out by the Court of Tax Appeals, petitioner was merely entitled to a proportionate return of the mine’s assets
upon dissolution of the parties’ business relations. There was nothing in the agreement that would require Baguio
Gold to make payments of the advances to petitioner as would be recognized as an item of obligation or "accounts
payable" for Baguio Gold.

Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Niño mine
upon termination, a provision that is more consistent with a partnership than a creditor-debtor relationship. It should
be pointed out that in a contract of loan, a person who receives a loan or money or any fungible thing acquires
ownership thereof and is bound to pay the creditor an equal amount of the same kind and quality.23 In this case,
however, there was no stipulation for Baguio Gold to actually repay petitioner the cash and property that it had
advanced, but only the return of an amount pegged at a ratio which the manager’s account had to the owner’s
account.

In this connection, we find no contractual basis for the execution of the two compromise agreements in which
Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of their business
relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner would only be entitled to
the return of a proportionate share of the mine assets to be computed at a ratio that the manager’s account had to
the owner’s account. Except to provide a basis for claiming the advances as a bad debt deduction, there is no
reason for Baguio Gold to hold itself liable to petitioner under the compromise agreements, for any amount over and
above the proportion agreed upon in the "Power of Attorney".

Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of
pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the terms and
conditions of such loans. The parties also did not provide a specific maturity date for the advances to become due
and demandable, and the manner of payment was unclear. All these point to the inevitable conclusion that the
advances were not loans but capital contributions to a partnership.

The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50% of the
net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties’ contractual
stipulations simply leads to no other conclusion than that petitioner’s "compensation" is actually its share in the
income of the joint venture.

Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no such
inference can be drawn against it since its share in the profits of the Sto Niño project was in the nature of
compensation or "wages of an employee", under the exception provided in Article 1769 (4) (b).24

On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be paid
"wages" pursuant to an employer-employee relationship. To begin with, petitioner was the manager of the project
and had put substantial sums into the venture in order to ensure its viability and profitability. By pegging its
compensation to profits, petitioner also stood not to be remunerated in case the mine had no income. It is hard to
believe that petitioner would take the risk of not being paid at all for its services, if it were truly just an ordinary
employee.

Consequently, we find that petitioner’s "compensation" under paragraph 12 of the agreement actually constitutes its
share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal share in the income of
the mine if it were just an employee of Baguio Gold.25 It is not surprising that petitioner was to receive a 50% share
in the net profits, considering that the "Power of Attorney" also provided for an almost equal contribution of the

37
parties to the St. Nino mine. The "compensation" agreed upon only serves to reinforce the notion that the parties’
relations were indeed of partners and not employer-employee.

All told, the lower courts did not err in treating petitioner’s advances as investments in a partnership known as the
Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was under no
unconditional obligation to return the same to the former under the "Power of Attorney". As for the amounts that
petitioner paid as guarantor to Baguio Gold’s creditors, we find no reason to depart from the tax court’s factual
finding that Baguio Gold’s debts were not yet due and demandable at the time that petitioner paid the same. Verily,
petitioner pre-paid Baguio Gold’s outstanding loans to its bank creditors and this conclusion is supported by the
evidence on record.26

In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income
tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to the deduction claimed.27 In this case, petitioner failed to
substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its
gross income. Consequently, it could not claim the advances as a valid bad debt deduction.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385 dated June
30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner
Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the amount of
P62,811,161.31, with 20% delinquency interest computed from February 10, 1995, which is the due date given for
the payment of the deficiency income tax, up to the actual date of payment.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

*CONCHITA CARPIO MORALES

Associate Justice

MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

38
Footnotes

* In lieu of Associate Justice Ma. Alicia Austria-Martinez.

1Rollo, pp. 46-57; penned by Associate Justice Portia Aliño-Hormachuelos and concurred in by Associate
Justices Ma. Alicia Austria-Martinez (now an Associate Justice of the Supreme Court) and Elvi John S.
Asuncion.

2 Id. at 169-196; penned by Justice Amancio Q. Saga.

3 Id. at 59.

4 Id. at 60-69.

5 Id. at 62-63, 66 & 68.

6 Id. at 124.

7 Id. at 89-97.

8 Id. at 98-106.

9 Id. at 129.

10 Id. at 148-149.

11 Id. at 195.

12 Id. at 46-57.

13
Id. at 59.

14 Id. at 18.

15 CIVIL CODE, Art. 1767.

16Aurbach v. Sanitary Wares Manufacturing Corporation, G.R. No. 75875, December 15, 1989, 180 SCRA
130, 146-147.

17 Power of Attorney, paragraph 2(a), rollo, p. 61.

18 Rollo, p. 62.

19CIVIL CODE, Art. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in
the contract of partnership and his removal from the management is unjustifiable.

20 Partnership, Agency and Trusts, 1996 Ed., De Leon and De Leon, Jr., p. 330.

21 See Nielson & Company, Inc. v. Lepanto Consolidated Mining Company, 135 Phil. 532, 542 (1968).

22 Rollo, p. 63.

23 CIVIL CODE, Art. 1953.

24Article 1769 (4) (b) of the Civil Code states:Art. 1769. In determining whether a partnership exists, these
rules shall apply:x x x x(4) The receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:x x x x(b) As wages of an employee or rent to a landlord;x x x x25 See Tocao v. Court of
Appeals, 396 Phil. 166, 180-182 (2000).26 Rollo, pp. 81-88.27 See Law of Basic Taxation in the Philippines,
2001 Revised Ed., Benjamin B. Aban, p. 119.

39
 Republic of the Philippines
SUPREME COURT
Manila

G.R. No. 164205 September 3, 2009

OLDARICO S. TRAVEÑO, ROVEL A. GENELSA, RUEL U. VILLARMENTE, ALFREDO A. PANILAGAO,

CARMEN P. DANILA, ELIZABETH B. MACALINO, RAMIL P. ALBITO, REYNALDO A. LADRILLO, LUCAS G.
TAMAYO, DIOSDADO A. AMORIN, RODINO C. VASQUEZ, GLORIA A. FELICANO, NOLE E. FERMILAN,
JOSELITO B. RENDON, CRISTETA D. CAÑA, EVELYN D. ARCENAL and JEORGE M. NONO, Petitioners,
vs.
BOBONGON BANANA GROWERS MULTI-PURPOSE COOPERATIVE, TIMOG AGRICULTURAL
CORPORATION, DIAMOND FARMS, INC., and DOLE ASIA PHILIPPINES, Respondents.

DECISION

CARPIO MORALES, J.:

By the account of petitioner Oldarico Traveño and his 16 co-petitioners, in 1992, respondent Timog Agricultural
Corporation (TACOR) and respondent Diamond Farms, Inc. (DFI) hired them to work at a banana plantation at
Bobongon, Santo Tomas, Davao Del Norte which covered lands previously planted with rice and corn but whose
owners had agreed to convert into a banana plantation upon being convinced that TACOR and DFI could provide
the needed capital, expertise, and equipment. Petitioners helped prepare the lands for the planting of banana
suckers and eventually carried out the planting as well.1

Petitioners asseverated that while they worked under the direct control of supervisors assigned by TACOR and DFI,
these companies used different schemes to make it appear that petitioners were hired through independent
contractors, including individuals, unregistered associations, and cooperatives; that the successive changes in the
names of their employers notwithstanding, they continued to perform the same work under the direct control of
TACOR and DFI supervisors; and that under the last scheme adopted by these companies, the nominal individual
contractors were required to, as they did, join a cooperative and thus became members of respondent Bobongon
Banana Growers Multi-purpose Cooperative (the Cooperative).2

Continued petitioners: Sometime in 2000, above-named respondents began utilizing harassment tactics to ease
them out of their jobs. Without first seeking the approval of the Department of Labor and Employment (DOLE), they
changed their compensation package from being based on a daily rate to a pakyawan rate that depended on the
combined productivity of the "gangs" they had been grouped into. Soon thereafter, they stopped paying their
salaries, prompting them to stop working.3

One after another, three separate complaints for illegal dismissal were filed by petitioners, individually and
collectively, with the National Labor Relations Commission (NLRC) against said respondents including respondent
Dole Asia Philippines as it then supposedly owned TACOR,4 for unpaid salaries, overtime pay, 13th month pay,
service incentive leave pay, damages, and attorney’s fees.5

DFI answered for itself and TACOR, which it claimed had been merged with it and ceased to exist as a corporation.
Denying that it had engaged the services of petitioners,6 DFI alleged that during the corporate lifetime of TACOR, it
had an arrangement with several landowners in Santo Tomas, Davao Del Norte whereby TACOR was to extend
financial and technical assistance to them for the development of their lands into a banana plantation on the
condition that the bananas produced therein would be sold exclusively to TACOR; that the landowners worked on
their own farms and hired laborers to assist them; that the landowners themselves decided to form a cooperative in
order to better attain their business objectives; and that it was not in a position to state whether petitioners were
working on the banana plantation of the landowners who had contracted with TACOR.7 a1f

The Cooperative failed to file a position paper despite due notice, prompting the Labor Arbiter to consider it to have
waived its right to adduce evidence in its defense.

Nothing was heard from respondent Dole Asia Philippines.

By consolidated Decision dated October 30, 2002,8 the Labor Arbiter, found respondent Cooperative guilty of illegal
dismissal. It dropped the complaints against DFI, TACOR and Dole Asia Philippines. Thus it disposed:

WHEREFORE, judgment is hereby rendered:

1. Declaring respondent Bobongon Banana Growers Multi-purpose Cooperative guilty of illegal dismissal;

40
 2. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to pay complainants full
backwages from the time of their illegal dismissal up to this promulgation, to be determined during the
execution stage;

3. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to reinstate complainants to

their former positions without loss of seniority rights and if not possible, to pay them separation pay
equivalent to 1/2 month pay for every year of service;

4. Ordering respondent Bobongon Banana Grower Cooperative [sic] to pay 10% of the total award as
Attorney’s fees;

5. All other respondents are hereby dropped as party-respondents for lack of merit. (Underscoring supplied)

In finding for petitioners, the Labor Arbiter relied heavily on the following Orders submitted by DFI which were issued
in an earlier case filed with the DOLE, viz: (1) Order dated July 11, 1995 of the Director of DOLE Regional Office
No. XI declaring the Cooperative as the employer of the 341 workers in the farms of its several members; (2) Order
dated December 17, 1997 of the DOLE Secretary affirming the Order dated July 11, 1995 of the Director of DOLE
Regional Office No. XI; and (3) Order dated June 23, 1998 of the DOLE Secretary denying the Cooperative’s Motion
for Reconsideration.

On partial appeal to the NLRC, petitioners questioned the Labor Arbiter’s denial of their money claims and the
dropping of their complaints against TACOR, DFI, and Dole Asia Philippines.

By Resolution dated July 30, 2003,9 the NLRC sustained the Labor Arbiter’s ruling that the employer of petitioners is
the Cooperative, there being no showing that the earlier mentioned Orders of the DOLE Secretary had been set
aside by a court of competent jurisdiction. It partially granted petitioners’ appeal, however, by ordering the
Cooperative to pay them their unpaid wages, wage differentials, service incentive leave pay, and 13th month pay. It
thus remanded the case to the Labor Arbiter for computation of those awards.

Their Motion for Reconsideration having been denied by Resolution of September 30, 2003,10 petitioners appealed
to the Court of Appeals via certiorari.11

By Resolution dated February 20, 2004,12 the appellate court dismissed petitioners’ petition for certiorari on the
ground that the accompanying verification and certification against forum shopping was defective, it having been
signed by only 19 of the 22 therein named petitioners. Their Motion for Reconsideration having been denied by
Resolution of May 13, 2004,13 petitioners lodged the present Petition for Review on Certiorari.

Petitioners posit that the appellate court erred in dismissing their petition on a mere technicality as it should have, at
most, dismissed the petition only with respect to the non-signing petitioners.

Dwelling on the merits of the case, petitioners posit that the Labor Arbiter and the NLRC disregarded evidence on
record showing that while the Cooperative was their employer on paper, the other respondents exercised control
and supervision over them; that the Cooperative was a labor-only contractor; and that the Orders of the DOLE
Secretary relied upon by the Labor Arbiter and the NLRC are not applicable to them as the same pertained to a
certification election case involving different parties and issues.14

DFI, commenting for itself and TACOR, maintains that, among other things, it was not the employer of petitioners;
and that it cannot comment on their money claims because no evidence was submitted in support thereof.15

It appears that respondent Cooperative had been dissolved.16

As respondent Dole Asia Philippines failed to file a comment, the Court, by Resolution of November 29,
2006,17 required it to (1) show cause why it should not be held in contempt for its failure to heed the Court’s
directive, and (2) file the required comment, within 10 days from notice.

Dole Philippines, Inc. (DPI) promptly filed an Urgent Manifestation18 stating that, among other things, while its
division located in Davao City received the Court’s Resolution directing Dole Asia Philippines to file a comment on
the present petition, DPI did not file a comment as the directive was addressed to "Dole Asia Philippines", an entity
which is not registered at the Securities and Exchange Commission.

Commenting on DPI’s Urgent Manifestation, petitioners contend that DPI cannot be allowed to take advantage of
their lack of knowledge as to its exact corporate name, DPI having raised the matter for the first time before this
Court notwithstanding its receipt of all pleadings and court processes from the inception of this case.19

41
Upon review of the records, the Court finds that DPI never ever participated in the proceedings despite due notice.
Its posturing, therefore, that the court processes it received were addressed to "Dole Asia Philippines," a non-
existent entity, does not lie. That DPI is the intended respondent, there is no doubt.

Respecting the appellate court’s dismissal of petitioners’ appeal due to the failure of some of them to sign the
therein accompanying verification and certification against forum-shopping, the Court’s guidelines for the bench and
bar in Altres v. Empleo,20 which were culled "from jurisprudential pronouncements," are instructive:

For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential pronouncements
already reflected above respecting non-compliance with the requirements on, or submission of defective, verification
and certification against forum shopping:

1) A distinction must be made between non-compliance with the requirement on or submission of defective
verification, and non-compliance with the requirement on or submission of defective certification against
forum shopping.

2) As to verification, non-compliance therewith or a defect therein does not necessarily render the pleading
fatally defective. The court may order its submission or correction or act on the pleading if the attending
circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of
justice may be served thereby.

3) Verification is deemed substantially complied with when one who has ample knowledge to swear to the
truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the
petition have been made in good faith or are true and correct.

4) As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in

verification, is generally not curable by its subsequent submission or correction thereof, unless there is a
need to relax the Rule on the ground of "substantial compliance" or presence of "special circumstances or
compelling reasons."

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case;
otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or justifiable
circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a
common cause of action or defense, the signature of only one of them in the certification against forum
shopping substantially complies with the Rule.

6) Finally, the certification against forum shopping must be executed by the party-pleader, not by his
counsel. If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he must
execute a Special Power of Attorney designating his counsel of record to sign on his behalf. (Emphasis and
underscoring supplied)

The foregoing restated pronouncements were lost in the challenged Resolutions of the appellate court. Petitioners’
contention that the appellate court should have dismissed the petition only as to the non-signing petitioners or
merely dropped them as parties to the case is thus in order.

Instead of remanding the case to the appellate court, however, the Court deems it more practical to decide the
substantive issue raised in this petition so as not to further delay the disposition of this case.21 And it thus resolves to
deviate as well from the general rule that factual questions are not entertained in petitions for review on certiorari of
the appellate court’s decisions in order to write finis to this protracted litigation.

The sole issue is whether DFI (with which TACOR had been merged) and DPI should be held solidarily liable with
the Cooperative for petitioners’ illegal dismissal and money claims.

The Labor Code and its Implementing Rules empower the Labor Arbiter to be the trier of facts in labor
cases.22 Much reliance is thus placed on the Arbiter’s findings of fact, having had the opportunity to discuss with the
parties and their witnesses the factual matters of the case during the conciliation phase.23 Just the same, a review of
the records of the present case does not warrant a conclusion different from the Arbiter’s, as affirmed by the NLRC,
that the Cooperative is the employer of petitioners.

To be sure, the matter of whether the Cooperative is an independent contractor or a labor-only contractor may not
be used to predicate a ruling in this case. Job contracting or subcontracting refers to an arrangement whereby a
principal agrees to farm out with a contractor or subcontractor the performance of a specific job, work or service
within a definite or predetermined period, regardless of whether such job, work or service is to be performed or
completed within or outside the premises of the principal.24 The present case does not involve such an arrangement.

DFI did not farm out to the Cooperative the performance of a specific job, work, or service. Instead, it entered into a
Banana Production and Purchase Agreement25 (Contract) with the Cooperative, under which the Cooperative would
42
handle and fund the production of bananas and operation of the plantation covering lands owned by its members in
consideration of DFI’s commitment to provide financial and technical assistance as needed, including the supply of
information and equipment in growing, packing, and shipping bananas. The Cooperative would hire its own workers
and pay their wages and benefits, and sell exclusively to DFI all export quality bananas produced that meet the
specifications agreed upon.

To the Court, the Contract between the Cooperative and DFI, far from being a job contracting arrangement, is in
essence a business partnership that partakes of the nature of a joint venture.26 The rules on job contracting are,
therefore, inapposite. The Court may not alter the intention of the contracting parties as gleaned from their
stipulations without violating the autonomy of contracts principle under Article 1306 of the Civil Code which gives the
contracting parties the utmost liberality and freedom to establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good custom, public order or public
policy.

Petitioners’ claim of employment relationship with the Cooperative’s herein co-respondents must be assessed on
the basis of four standards, viz: (a) the manner of their selection and engagement; (b) the mode of payment of their
wages; (c) the presence or absence of the power of dismissal; and (d) the presence or absence of control over their
conduct. Most determinative among these factors is the so-called "control test."27

There is nothing in the records which indicates the presence of any of the foregoing elements of an employer-
employee relationship.

The absence of the first requisite, which refers to selection and engagement, is shown by DFI’s total lack of
knowledge on who actually were engaged by the Cooperative to work in the banana plantation. This is borne out by
the Contract between the Cooperative and DFI, under which the Cooperative was to hire its own workers. As
TACOR had been merged with DFI, and DPI is merely alleged to have previously owned TACOR, this applies to
them as well. Petitioners failed to prove the contrary. No employment contract whatsoever was submitted to
substantiate how petitioners were hired and by whom.

On the second requisite, which refers to the payment of wages, it was likewise the Cooperative that paid the same.
As reflected earlier, under the Contract, the Cooperative was to handle and fund the production of bananas and
operation of the plantation.28 The Cooperative was also to be responsible for the proper conduct, safety, benefits,
and general welfare of its members and workers in the plantation.29

As to the third requisite, which refers to the power of dismissal, and the fourth requisite, which refers to the power of
control, both were retained by the Cooperative. Again, the Contract stipulated that the Cooperative was to be
responsible for the proper conduct and general welfare of its members and workers in the plantation.

The crucial element of control refers to the authority of the employer to control the employee not only with regard to
the result of the work to be done, but also to the means and methods by which the work is to be
accomplished.30 While it suffices that the power of control exists, albeit not actually exercised, there must
be some evidence of such power. In the present case, petitioners did not present any.

There being no employer-employee relationship between petitioners and the Cooperative’s co-respondents, the
latter are not solidarily liable with the Cooperative for petitioners’ illegal dismissal and 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.

En passant, petitioners are not precluded from pursuing any available remedies against the former members of the
defunct Cooperative as their individual circumstances may warrant.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

43
 RENATO C. CORONA MARIANO C. DEL CASTILLO
Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the
conclusions in the above decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

* Additional member vice Justice Arturo D. Brion, due to prior participation in the Court of Appeals.

1 Vide Position Papers of Petitioners, NLRC records, Vol. I, pp. 37-54; 67-86.

2
Id.

3 Id.

4 Id. at 38, 68.

5 Id. at 1-13.

6 Id. at 30-36.

7 Id. at 119-134.

8 Id. at 103-115.

9 NLRC records, Vol. II, pp. 89-93.

10 Id. at 142.

11 CA rollo, pp. 2-24.

12Penned by Associate Justice Eloy R. Bello, Jr., with the concurrence of Associate Justice Amelita G.
Tolentino and then Associate Justice of the Court of Appeals, now Associate Justice of this Court, Arturo D.
Brion; CA rollo, pp. 174-175.

13 Id. at 187.

14 Vide Petition, rollo, pp. 12-44.

15 Vide Comment of DFI, id. at 231-235.

16 Id. at 263-265.

44
17 Id. at 265.

18 Id. at 266-270.

19 Id. at 276-280.

20 G.R. No. 180986, December 10, 2008.

21 Vide Chan v. Secretary of Justice, G.R. No. 147065, March 14, 2008, 548 SCRA 337, 351-352.

22 Manaya v. Alabang Country Club, Incorporated, G.R. No. 168988, June 19, 2007, 525 SCRA 140, 159.

23 Salazar v. Phil. Duplicators, Inc., G.R. No. 154628, December 6, 2006, 510 SCRA 288, 305.

24 Vide Acevedo v. Advanstar Company, Inc., G.R. No. 157656, November 11, 2005, 474 SCRA 656, 667.

25 NLRC records, Vol. I, pp. 162-183.

26A joint venture is an association of persons or companies jointly undertaking some commercial enterprise;
generally, all contribute assets and share risks. (Kilosbayan v. Guingona, G.R. No. 113375, May 5, 1994,
232 SCRA 110, 144)

27 De los Santos v. National Labor Relations Commission, 423 Phil. 1020, 1029 (2001).

28 Vide NLRC records, Vol. I, p. 169.

29 Id. at 176.

30 Almeda v. Asahi Glass Philippines, Inc., G.R. No. 177785, September 3, 2008, 564 SCRA 115, 127-128.

45
 THIRD DIVISION

[G.R. No. 183374 : June 29, 2010]

MARSMAN DRYSDALE LAND, INC.,PETITIONER, VS. PHILIPPINE GEOANALYTICS, INC.

AND GOTESCO PROPERTIES, INC., RESPONDENTS.

[G.R. NO. 183376]

GOTESCO PROPERTIES, INC., PETITIONER, VS. MARSMAN DRYSDALE LAND, INC. AND
PHILIPPINE GEOANALYTICS, INC., RESPONDENTS.

DECISION

CARPIO MORALES, J.:

On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties,
Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the construction and development
of an office building on a land owned by Marsman Drysdale in Makati City.[1]

The JVA contained the following pertinent provisions:

SECTION 4. CAPITAL OF THE JV

It is the desire of the Parties herein to implement this Agreement by investing in the PROJECT
on a FIFTY (50%) PERCENT- FIFTY (50%) PERCENT basis.

4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute the Property.

The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY MILLION
(P420,000,000.00).

For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable condition within
ninety (90) days from signing of this Agreement barring any unforeseen circumstances over which
[Marsman Drysdale] has no control. Buildable condition shall mean that the old building/structure
which stands on the Property is demolished and taken to ground level.

4.2. Contribution of [Gotesco]- [Gotesco] shall contribute the amount of PESOS: FOUR
HUNDRED TWENTY MILLION (P420,000,000.00) in cash which shall be payable as follows:

4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon

signing of this Agreement.

4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION

(P370,000,000.00) shall be paid based on progress billings,
relative to the development and construction of the Building,
but shall in no case exceed ten (10) months from delivery of
the Property in a Buildable condition as defined in section 4.1.
A joint account shall be opened and maintained by both Parties for handling of said balance,
among other Project concerns.

4.3. Funding and Financing

4.3.1 Construction funding for the Project shall be obtained

from the cash contribution of [Gotesco].

4.3.2 Subsequent funding shall be obtained from the pre-selling of

units in the Building or, when necessary, from loans from
various banks or financial institutions. [Gotesco] shall arrange
the required funding from such banks or financial institutions,
under such terms and conditions which will provide financing
rates favorable to the Parties.

4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project

as its contribution is limited to the Property.

4.3.4 If the cost of the Project exceeds the cash contribution of

[Gotesco], the proceeds obtained from the pre-selling of units
and proceeds from loans, the Parties shall agree on other
46
 sources and terms of funding such excess as soon as
practicable.

4.3.5 x x x x.

4.3.6 x x x x.

4.3.7 x x x x.

4.3.8 All funds advanced by a Party (or by third parties in

substitution for advances from a Party) shall be repaid by
the JV.

4.3.9 If any Party agrees to make an advance to the Project

but fails to do so (in whole or in part) the other party
may advance the shortfall and the Party in default shall
indemnify the Party making the substitute advance on
demand for all of its losses, costs and expenses incurred
in so doing. (emphasis supplied; underscoring in the original)
Via Technical Services Contract (TSC) dated July 14, 1997,[2] the joint venture engaged the
services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory
testing, seismic study and geotechnical engineering for the project. PGI, was, however, able to
drill only four of five boreholes needed to conduct its subsurface soil exploration and laboratory
testing, justifying its failure to drill the remaining borehole to the failure on the part of the joint
venture partners to clear the area where the drilling was to be made.[3] PGI was able to complete
its seismic study though.

PGI then billed the joint venture on November 24, 1997 for P284,553.50 representing the cost of
partial subsurface soil exploration; and on January 15, 1998 for P250,800 representing the cost of
the completed seismic study.[4]

Despite repeated demands from PGI,[5] the joint venture failed to pay its obligations.

Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short
and the planned building project was eventually shelved.[6]

PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and
damages at the Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.

In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of
paying PGI to Gotesco which, under the JVA, was solely liable for the monetary expenses of the
project.[7]

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; and that Marsman Drysdale failed to clear the
property of debris which prevented PGI from completing its work.[8]

By Decision of June 2, 2004,[9] Branch 226 of the Quezon City RTC rendered judgment in favor of
PGI, disposing as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiff [PGI].

The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:

(1) the sum of P535,353.50 with legal interest from the date of this decision until fully paid;

(2) the sum of P200,000.00 as exemplary damages;

(3) the sum of P200,000.00 as and for attorney's fees; and

(4) costs of suit.

The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is hereby

GRANTED as follows:

a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman Drysdale] in the amount

of P535,353.[50] in accordance with the [JVA].

b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman Drysdale] the sum of
P100,000.00 as and for attorney's fees.

47
SO ORDERED. (underscoring in the original; emphasis supplied)

Marsman Drysdale moved for partial reconsideration, contending that it should not have been held
jointly liable with Gotesco on PGI's claim as well as on the awards of exemplary damages and
attorney's fees. The motion was, by Resolution of October 28, 2005, denied.

Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by Decision of
January 28, 2008,[10] affirmed with modification the decision of the trial court. Thus the
appellate court disposed:

WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED. The assailed
Decision dated June 2, 2004 and the Resolution dated October 28, 2005 of the RTC of Quezon
City, Branch 226, in Civil Case No. Q99-39248 are hereby AFFIRMED with
MODIFICATION deleting the award of exemplary damages in favor of [PGI] and the P100,000.00
attorney's fees in favor of [Marsman Drysdale] and ordering defendant-appellant [Gotesco]
to REIMBURSE [Marsman Drysdale] 50% of the aggregate sum due [PGI], instead of the lump
sum P535,353.00 awarded by the RTC. The rest of the Decision stands.

SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)

In partly affirming the trial court's decision, the appellate court ratiocinated that notwithstanding
the terms of the JVA, the joint venture cannot avoid payment of PGI's claim since "[the JVA] could
not affect third persons like [PGI] because of the basic civil law principle of relativity of contracts
which provides that contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has acted with knowledge
thereof."[11]

Their motions for partial reconsideration having been denied,[12] Marsman Drysdale and Gotesco
filed separate petitions for review with the Court which were docketed as G.R. Nos. 183374 and
183376, respectively. By Resolution of September 8, 2008, the Court consolidated the petitions.

In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in

A. ...ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER CONCEDING THAT

[GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE TO [PGI].

B. ...AWARDING ATTORNEY'S FEES IN FAVOR OF [PGI]...

C. ...IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE REQUIREMENT OF
"SATISFACTORY PERFORMANCE" OF ITS PRESTATION WHICH, PURSUANT TO THE TECHNICAL
SERVICES CONTRACT, IS THE CONDITION SINE QUA NON TO COMPENSATION.

D. ...DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN DRYSDALE'S] ENTITLEMENT TO AN

AWARD OF ATTORNEY'S FEES.[13]

On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court committed error
when it

...ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK PERFORMED BY [PGI] AND
P100,000.00 [AS] ATTORNEY'S FEES ...[AND] TO REIMBURSE [MARSMAN DRYSDALE] 50%
OF P535,353.50 AND PAY [MARSMAN DRYSDALE] P100,000.00 AS ATTORNEY'S FEES. [14]

On the issue of whether PGI was indeed entitled to the payment of services it rendered, the Court
sees no imperative to re-examine the congruent findings of the trial and appellate courts thereon.
Undoubtedly, the exercise involves an examination of facts which is normally beyond the ambit of
the Court's functions under a petition for review, for it is well-settled that this Court is not a trier
of facts. While this judicial tenet admits of exceptions, such as when the findings of facts of the
appellate court are contrary to those of the trial court's, or when the judgment is based on a
misapprehension of facts, or when the findings of facts are contradicted by the evidence on
record,[15] these extenuating grounds find no application in the present petitions.

At all events, the Court is convinced that PGI had more than sufficiently established its claims
against the joint venture. In fact, Marsman Drysdale had long recognized PGI's contractual claims
when it (PGI) received a Certificate of Payment[16] from the joint venture's project
manager[17] which was endorsed to Gotesco for processing and payment.[18]

The core issue to be resolved then is which between joint venturers Marsman Drysdale and
Gotesco bears the liability to pay PGI its unpaid claims.

To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the project was
to be obtained from Gotesco's cash contribution, as its (Marsman Drysdale's) participation in the
venture was limited to the land.

Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of
Marsman Drysdale that PGI was unable to complete its undertaking.

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.

48
PGI executed a technical service contract with the joint venture and was never a party to the JVA.
While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land)
and Gotesco (cash) as well as the funding and financing mechanism for the project, the same
cannot be used to defeat the lawful claim of PGI against the two joint venturers-partners.

The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner
of the project,[19] and all billing invoices indicated the consortium therein as the client.

As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively read:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire compliance with the prestations.
There is a solidary liability only when the obligation expressly so states, or when the law or nature
of the obligation requires solidarity.

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or debt shall be presumed to be
divided into as many equal shares as there are creditors or debtors, the credits or debts
being considered distinct from one another, subject to the Rules of Court governing the multiplicity
of suits. (emphasis and underscoring supplied),

presume that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco.

The only time that the JVA may be made to apply in the present petitions is when the liability of
the joint venturers to each other would set in.

A joint venture being a form of partnership, it is to be governed by the laws on

partnership.[20] Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only
the share of each partner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.

In the absence of stipulation, the share of each in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for
the profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in
the profits in proportion to his capital. (emphasis and underscoring supplied)

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the
project.[21] They did not provide for the splitting of losses, however. Applying the above-quoted
provision of Article 1797 then, the same ratio applies in splitting the P535,353.50 obligation-loss of
the joint venture.

The appellate court's decision must be modified, however. Marsman Drysdale and Gotesco being
jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale for "50% of the
aggregate sum due" to PGI.

Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary
to the law on partnership on division of losses but would partake of a clear case of unjust
enrichment at Gotesco's expense. The grant by the lower courts of Marsman Drysdale cross-claim
against Gotesco was thus erroneous.

Marsman Drysdale's supplication for the award of attorney's fees in its favor must be denied. It
cannot claim that it was compelled to litigate or that the civil action or proceeding against it was
clearly unfounded, for the JVA provided that, in the event a party advances funds for the project,
the joint venture shall repay the advancing party. [22]

Marsman Drysdale was thus not precluded from advancing funds to pay for PGI's contracted
services to abate any legal action against the joint venture itself. It was in fact hardline insistence
on Gotesco having sole responsibility to pay for the obligation, despite the fact that PGI's services
redounded to the benefit of the joint venture, that spawned the legal action against it and
Gotesco.

Finally, an interest of 12% per annum on the outstanding obligation must be imposed from the
time of demand[23] as the delay in payment makes the obligation one of forbearance of money,
conformably with this Court's ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals.[24] Marsman Drysdale and Gotesco should bear legal interest on their respective
obligations.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with
MODIFICATION in that the order for Gotesco to reimburse Marsman Drysdale is DELETED, and
interest of 12% per annum on the respective obligations of Marsman Drysdale and Gotesco is
imposed, computed from the last demand or on January 5, 1999 up to the finality of the Decision.

If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall be 12%
per annum computed from the time the judgment becomes final and executory until it is fully

49
satisfied. The appealed decision is, in all other respects, affirmed.

Costs against petitioners Marsman Drysdale and Gotesco.

SO ORDERED.

Carpio,* Brion, Abad,** and Villarama, Jr., JJ., concur.

Endnotes:

*
Additional member per Raffle dated June 16, 2010.

**
Additional member per Special Order No. 843 dated May 17, 2010.

[1]
I Records, pp. 101-120.

[2]
Id. at pp. 6-31.

[3]
Id. at p. 2.

[4]
Id. at pp. 33 and 36. Covered by Billing Invoice Nos. 437 and 526, respectively.

[5]
Id. at pp. 222, 224, and 225; Exhibits "E"; "F" and "G."

[6]
II Records, pp. 397-398. See also Transcript of Stenographic Notes, August 21, 2001, p. 8.

[7]
I Records, pp. 92-94.

[8]
Id. at p. 70.

[9]
II Records, pp. 505-530. Penned by Judge Leah S. Domingo Regala.

CA rollo, pp. 274-282. Penned by Associate Justice Estela M. Perlas-Bernabe with Associate
[10]

Justices Portia Aliסo-Hormachuelos and Lucas P. Bersamin (now a member of the Court).

[11]
Id. at p. 278.

[12]
Id. at p. 322.

[13]
Rollo (G.R. No. 183374), pp. 19-20.

[14]
Rollo (G.R. No. 183376), p. 19.

[15]
La Rosa v. Ambassador Hotel, G.R. No. 177059, March 13, 2009, 581 SCRA 340, 345-346.

[16]
I Records, pp. 218-221; Exhibits "B," "C" and "D."

[17]
Lawrence Campbell.

[18]
I Records, p. 223; Exhibit "E-2."

In the Technical Services Contract's SC-1 Definitions portion, it was stated that "OWNER means
[19]

Marsman-Drysdale Land, Inc./Gotesco Properties, Inc., a Joint Venture and its authorized
representatives and successors in interest."

Aurbach v. Sanitary Wares Manufacturing Corp., G.R. No. 75875, December 15, 1989, 180
[20]

SCRA 130, 146-147.

I Records, p. 107. Section 8 of the JVA states that: "x x x x. a) proceeds from the JV shall be
[21]

shared equally on a 50:50 ratio between the Parties unless such ratio is changed due to additional
investments as provided in Section 4.3; x x x x."

[22]
I Records, p. 105. The JVA states that: "x x x x. 4.3.8. All funds advanced by a Party (or by
third parties in substitution for advances from a Party) shall be repaid by the [joint venture]. x x x
x."

[23]
Vide: I Records, p. 40. The last demand letter from PGI is dated January 5, 1999.

[24]
G.R. No. 97412, July 12, 1994, 234 SCRA 78.

50
 FIRST DIVISION

[G.R. No. 174149 : September 08, 2010]

J. TIOSEJO INVESTMENT CORP., PETITIONER, VS. SPOUSES BENJAMIN AND ELEANOR

ANG, RESPONDENTS.

DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at bench
seeks the reversal of the Resolutions dated 23 May 2006 and 9 August 2006 issued by the Third
Division of the Court of Appeals (CA) in CA-G.R. SP No. 93841 which, respectively, dismissed the
petition for review of petitioner J. Tiosejo Investment Corp. (JTIC) for having been filed out of
time[1] and denied the motion for reconsideration of said dismissal.[2]

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with Primetown
Property Group, Inc. (PPGI) for the development of a residential condominium project to be known
as The Meditel on the former's 9,502 square meter property along Samat St., Highway Hills,
Mandaluyong City.[3] With petitioner contributing the same property to the joint venture and PPGI
undertaking to develop the condominium, the JVA provided, among other terms and conditions,
that the developed units shall be shared by the former and the latter at a ratio of 17%-83%,
respectively.[4] While both parties were allowed, at their own individual responsibility, to pre-sell
the units pertaining to them,[5] PPGI further undertook to use all proceeds from the pre-selling of
its saleable units for the completion of the Condominium Project." [6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued License to Sell No.
96-06-2854 in favor of petitioner and PPGI as project owners.[7] By virtue of said license, PPGI
executed Contract to Sell No. 0212 with Spouses Benjamin and Eleanor Ang on 5 February 1997,
over the 35.45-square meter condominium unit denominated as Unit A-1006, for the agreed
contract price of P52,597.88 per square meter or a total P2,077,334.25.[8] On the same date
PPGI and respondents also executed Contract to Sell No. 0214 over the 12.50 square meter
parking space identified as Parking Slot No. 0405, for the stipulated consideration of P26,400.00
square meters or a total of P313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the rescission of
the aforesaid Contracts to Sell docketed before the HLURB as HLURB Case No. REM 072199-
10567. Contending that they were assured by petitioner and PPGI that the subject condominium
unit and parking space would be available for turn-over and occupancy in December 1998,
respondents averred, among other matters, that in view of the non-completion of the project
according to said representation, respondents instructed petitioner and PPGI to stop depositing the
post-dated checks they issued and to cancel said Contracts to Sell; and, that despite several
demands, petitioner and PPGI have failed and refused to refund the P611,519.52 they already paid
under the circumstances. Together with the refund of said amount and interests thereon at the
rate of 12% per annum, respondents prayed for the grant of their claims for moral and exemplary
damages as well as attorney's fees and the costs.[10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed its 7 September
1999 answer alleging that the delay in the completion of the project was attributable to the
economic crisis which affected the country at the time; that the unexpected and unforeseen
inflation as well as increase in interest rates and cost of building materials constitute force
majeure and were beyond its control; that aware of its responsibilities, it offered several
alternatives to its buyers like respondents for a transfer of their investment to its other feasible
projects and for the amounts they already paid to be considered as partial payment for the
replacement unit/s; and, that the complaint was prematurely filed in view of the on-going
negotiations it is undertaking with its buyers and prospective joint venture partners. Aside from
the dismissal of the complaint, PPGI sought the readjustment of the contract price and the grant of
its counterclaims for attorney's fees and litigation expenses.[11]

Petitioner also specifically denied the material allegations of the complaint in separate answer
dated 5 February 2002[12] which it amended on 20 May 2002. Calling attention to the fact that its
prestation under the JVA consisted in contributing the property on which The Meditel was to be
constructed, petitioner asseverated that, by the terms of the JVA, each party was individually
responsible for the marketing and sale of the units pertaining to its share; that not being privy to
the Contracts to Sell executed by PPGI and respondents, it did not receive any portion of the
payments made by the latter; and, that without any contributory fault and negligence on its part,
PPGI breached its undertakings under the JVA by failing to complete the condominium project. In
addition to the dismissal of the complaint and the grant of its counterclaims for exemplary
damages, attorney's fees, litigation expenses and the costs, petitioner interposed a cross-claim
against PPGI for full reimbursement of any sum it may be adjudged liable to pay respondents.[13]

Acting on the position papers and draft decisions subsequently submitted by the
parties,[14] Housing and Land Use (HLU) Arbiter Dunstan T. San Vicente went on to render the 30
July 2003 decision declaring the subject Contracts to Sell cancelled and rescinded on account of
the non-completion of the condominium project. On the ground that the JVA created a partnership
liability on their part, petitioner and PPGI, as co-owners of the condominium project, were ordered
to pay: (a) respondents' claim for refund of the P611,519.52 they paid, with interest at the rate of

51
12% per annum from 5 February 1997; (b) damages in the sum of P75,000.00; (c) attorney's fees
in the sum of P30,000.00; (d) the costs; and, (e) an administrative fine in the sum of P10,000.00
for violation of Sec. 20 in relation to Sec. 38 of Presidential Decree No. 957. [15]nbsp; Elevated to
the HLURB Board of Commissioners via the petition for review filed by petitioner,[16] the foregoing
decision was modified to grant the latter's cross-claim in the 14 September 2004 decision
rendered by said administrative body's Second Division in HLURB Case No. REM-A-031007-
0240,[17] to wit:

Wherefore, the petition for review of the respondent Corporation is dismissed. However, the
decision of the Office below dated July 30, 2003 is modified, hence, its dispositive portion shall
read:

1. Declaring the contracts to sell, both dated February 5, 1997, as cancelled and
rescinded, and ordering the respondents to immediately pay the complainants the
following:

a. The amount of P611,519.52, with interest at the legal rate reckoned from
February 5, 1997 until fully paid;
b. Damages of P75,000.00;
c. Attorney's fees equivalent to P30,000.00; and
d. The Cost of suit;

2. Ordering respondents to pay this Office administrative fine of P10,000.00 for

violation of Section 20 in relation to Section 38 of P.D. 957; and

3. Ordering respondent Primetown to reimburse the entire amount which the

respondent Corporation will be constrained to pay the complainants.

So ordered.[18]

With the denial of its motion for reconsideration of the foregoing decision,[19] petitioner filed a
Notice of Appeal dated 28 February 2005 which was docketed before the Office of the President
(OP) as O.P. Case No. 05-B-072.[20] On 3 March 2005, the OP issued an order directing petitioner
to submit its appeal memorandum within 15 days from receipt thereof.[21] Acting on the motion
therefor filed, the OP also issued another order on the same date, granting petitioner a period of
15 days from 28 February 2005 or until 15 March 2005 within which to file its appeal
memorandum.[22] In view of petitioner's filing of a second motion for extension dated 15 March
2005,[23] the OP issued the 18 March 2005 order granting the former an additional 10 days from
15 March 2005 or until 25 March 2005 within which to file its appeal memorandum, "provided no
further extension shall be allowed."[24] Claiming to have received the aforesaid 3 March 2005 order
only on 16 March 2005, however, petitioner filed its 31 March 2005 motion seeking yet another
extension of 10 days or until 10 April 2005 within which to file its appeal memorandum.[25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for extension of
petitioner[26] which eventually filed its appeal memorandum by registered mail on 11 April 2005 in
view of the fact that 10 April 2005 fell on a Sunday.[27] On 25 October 2005, the OP rendered a
decision dismissing petitioner's appeal on the ground that the latter's appeal memorandum was
filed out of time and that the HLURB Board committed no grave abuse of discretion in rendering
the appealed decision.[28] Aggrieved by the denial of its motion for reconsideration of the
foregoing decision in the 3 March 2006 order issued by the OP,[29] petitioner filed before the CA its
29 March 2006 motion for an extension of 15 days from 31 March 2006 or until 15 April 2006
within which to file its petition for review.[30] Accordingly, a non-extendible period of 15 days to
file its petition for review was granted petitioner in the 31 March 2006 resolution issued by the CA
Third Division in CA-G.R, SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its counsel
from finalizing its petition for review, petitioner filed a motion on 17 April 2006, seeking for an
additional time of 10 days or until 27 April 2006 within which to file said pleading.[32] Although
petitioner filed by registered mail a motion to admit its attached petition for review on 19 April
2006,[33] the CA issued the herein assailed 23 May 2006 resolution,[34] disposing of the former's
pending motion for extension as well as the petition itself in the following wise:

We resolve to DENY the second extension motion and rule to DISMISS the petition for being filed
late.

Settled is that heavy workload is by no means excusable (Land Bank of the Philippines vs.
Natividad, 458 SCRA 441 [2005]). If the failure of the petitioners' counsel to cope up with heavy
workload should be considered a valid justification to sidestep the reglementary period, there
would be no end to litigations so long as counsel had not been sufficiently diligent or experienced
(LTS Philippine Corporation vs. Maliwat, 448 SCRA 254, 259-260 [2005], citing Sublay vs. National
Labor Relations Commission, 324 SCRA 188 [2000]).

Moreover, lawyers should not assume that their motion for extension or postponement will be
granted the length of time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

SO ORDERED.[35]

52
Petitioner's motion for reconsideration of the foregoing resolution[36] was denied for lack of merit in
the CA's second assailed 9 August 2006 resolution,[37] hence, this petition.

The Issues

Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:

I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE

TECHNICALITY;

II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION

ON THE MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENT'S
DECISION (A) DISMISSING JTIC'S APPEAL ON A MERE TECHNICALITY;
(B) AFFIRMING THE HLURB BOARD'S DECISION INSOFAR AS IT FOUND
JTIC SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES ANG
DAMAGES, ATTORNEY'S FEES AND THE COST OF THE SUIT; AND (C)
AFFIRMING THE HLURB BOARD'S DECISION INSOFAR AS IT FAILED TO
AWARD JITC ITS COUNTERCLAIMS AGAINST SPOUSES ANG.[38]

The Court's Ruling

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly frowned upon,[39] it
bears emphasizing that the procedural requirements of the rules on appeal are not harmless and
trivial technicalities that litigants can just discard and disregard at will.[40] Neither being a natural
right nor a part of due process, the rule is settled that the right to appeal is merely a statutory
privilege which may be exercised only in the manner and in accordance with the provisions of the
law.[41] The perfection of an appeal in the manner and within the period prescribed by law is, in
fact, not only mandatory but jurisdictional.[42] Considering that they are requirements which
cannot be trifled with as mere technicality to suit the interest of a party,[43] failure to perfect an
appeal in the prescribed manner has the effect of rendering the judgment final and executory.[44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes against the CA
for denying its second motion for extension of time for lack of merit and dismissing its petition for
review for having been filed out of time. Acting on the 29 March 2006 motion filed for the
purpose, after all, the CA had already granted petitioner an inextendible period of 15 days from 31
March 2006 or until 15 April 2006 within which to file its petition for review. Sec. 4, Rule 43 of
the 1997 Rules of Civil Procedure provides as follows:

Sec. 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from notice of the
award, judgment, final order or resolution, or from the date of its last publication, if publication is
required by law for its effectivity, or of the denial of petitioner's motion for new trial or
reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only
one (1) motion for reconsideration shall be allowed. Upon proper motion and payment of the full
amount of the docket fee before the expiration of the reglementary period, the Court of Appeals
may grant an additional period of fifteen (15) days only within which to file the petition for
review. No further extension shall be granted except for the most compelling reason and in no
case to exceed fifteen (15) days." (Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first motion,
petitioner filed a second motion for extension praying for an additional 10 days from 17 April 2006
within which to file its petition for review, on the ground that pressures of work and the demands
posed by equally important cases prevented its counsel from finalizing the same. As correctly
ruled by the CA, however, heavy workload cannot be considered as a valid justification to sidestep
the reglementary period[45] since to do so would only serve to encourage needless delays and
interminable litigations. Indeed, rules prescribing the time for doing specific acts or for taking
certain proceedings are considered absolutely indispensable to prevent needless delays and to
orderly and promptly discharge judicial business.[46] Corollary to the principle that the allowance or
denial of a motion for extension of time is addressed to the sound discretion of the
court,[47] moreover, lawyers cannot expect that their motions for extension or postponement will
be granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are necessary for an
effective and expeditious administration of justice and cannot, for said reason, be discarded with
the mere expediency of claiming substantial merit.[49] This holds particularly true in the case at
bench where, prior to the filing of its petition for review before the CA, petitioner's appeal before
the OP was likewise dismissed in view of its failure to file its appeal memorandum within the
extensions of time it had been granted by said office. After being granted an initial extension of
15 days to do the same, the records disclose that petitioner was granted by the OP a second
extension of 10 days from 15 March 2005 or until 25 March 2005 within which to file its appeal
memorandum, on the condition that no further extensions shall be allowed. Aside from not
heeding said proviso, petitioner had, consequently, no more time to extend when it filed its 31
March 2005 motion seeking yet another extension of 10 days or until 10 April 2005 within which to
file its appeal memorandum.

With the foregoing procedural antecedents, the initial 15-day extension granted by the CA and the
53
injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure against further extensions
"except for the most compelling reason", it was clearly inexcusable for petitioner to expediently
plead its counsel's heavy workload as ground for seeking an additional extension of 10 days within
which to file its petition for review. To our mind, petitioner would do well to remember that,
rather than the low gate to which parties are unreasonably required to stoop, procedural rules are
designed for the orderly conduct of proceedings and expeditious settlement of cases in the courts
of law. Like all rules, they are required to be followed[50] and utter disregard of the same cannot
be expediently rationalized by harping on the policy of liberal construction[51] which was never
intended as an unfettered license to disregard the letter of the law or, for that matter, a
convenient excuse to substitute substantial compliance for regular adherence thereto. When it
comes to compliance with time rules, the Court cannot afford inexcusable delay.[52]

Even prescinding from the foregoing procedural considerations, we also find that the HLURB
Arbiter and Board correctly held petitioner liable alongside PPGI for respondents' claims and the
P10,000.00 administrative fine imposed pursuant to Section 20 in relation to Section 38 of P.D.
957. By the express terms of the JVA, it appears that petitioner not only retained ownership of the
property pending completion of the condominium project[53] but had also bound itself to answer
liabilities proceeding from contracts entered into by PPGI with third parties. Article VIII, Section 1
of the JVA distinctly provides as follows:

"Sec. 1. Rescission and damages. Non-performance by either party of its obligations under this
Agreement shall be excused when the same is due to Force Majeure. In such cases, the defaulting
party must exercise due diligence to minimize the breach and to remedy the same at the soonest
possible time. In the event that either party defaults or breaches any of the provisions of this
Agreement other than by reason of Force Majeure, the other party shall have the right to
terminate this Agreement by giving notice to the defaulting party, without prejudice to the filing of
a civil case for damages arising from the breach of the defaulting party.

In the event that the Developer shall be rendered unable to complete the Condominium Project,
and such failure is directly and solely attributable to the Developer, the Owner shall send written
notice to the Developer to cause the completion of the Condominium Project. If the developer fails
to comply within One Hundred Eighty (180) days from such notice or, within such time, indicates
its incapacity to complete the Project, the Owner shall have the right to take over the construction
and cause the completion thereof. If the Owner exercises its right to complete the Condominium
Project under these circumstances, this Agreement shall be automatically rescinded upon written
notice to the Developer and the latter shall hold the former free and harmless from any and all
liabilities to third persons arising from such rescission. In any case, the Owner shall respect and
strictly comply with any covenant entered into by the Developer and third parties with respect to
any of its units in the Condominium Project. To enable the owner to comply with this contingent
liability, the Developer shall furnish the Owner with a copy of its contracts with the said buyers on
a month-to-month basis. Finally, in case the Owner would be constrained to assume the
obligations of the Developer to its own buyers, the Developer shall lose its right to ask for
indemnity for whatever it may have spent in the Development of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the area intended for
the Second Phase shall not be bound and/or subjected to the said covenants and/or any other
liability incurred by the Developer in connection with the development of the first phase."
(Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by
claiming that it was not in any way privy to the Contracts to Sell executed by PPGI and
respondents. As correctly argued by the latter, moreover, a joint venture is considered in this
jurisdiction as a form of partnership and is, accordingly, governed by the law of
partnerships.[54] Under Article 1824 of the Civil Code of the Philippines, all partners are solidarily
liable with the partnership for everything chargeable to the partnership, including loss or injury
caused to a third person or penalties incurred due to any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or with the authority of his co-
partners.[55] Whether innocent or guilty, all the partners are solidarily liable with the partnership
itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of merit.

SO ORDERED.

Corona, C.J., (Chairperson), Velasco, Jr., Leonardo-De Castro, and Mendoza,* JJ., concur.

Endnotes:

*
Per raffle dated 1 March 2010, Associate Justice Jose Catral Mendoza is designated as additional
member in place of Associate Justice Mariano C. Del Castillo, who was a signatory in the
questioned Resolution dated 23 May 2006.

[1]
Record, CA-G.R. SP No. 93841, pp. 818-819.

[2]
Id. at 859-860.

[3]
Record, HLURB Case No. REM-A-031007-0240/REM-072199-10567, pp. 246-255.

54
[4]
Id. at 251-252.

[5]
Id. at 249-250.

[6]
Id. at 253.

[7]
Id. at 2.

[8]
Id. at 6-8.

[9]
Id. at 3-5.

[10]
Id. at 9-12.

[11]
Id. at 23-29.

[12]
Id. at 101-110.

[13]
Id. at 133-147.

[14]
Id. at 41-54; 56-77; 157-175; 178-210.

[15]
Id. at 211-214.

[16]
Id. at 263-274.

[17]
Id. at 396-399.

[18]
Id. at 396.

[19]
Id. at 401-408; 413-414.

[20]
Rollo, 263-264.

[21]
Record, HLURB Case No. REM-A-031007-0240/REM-072199-10567, at 424-425.

[22]
Id. at 423.

[23]
Rollo, pp. 270-271.

[24]
Id. at 274.

[25]
Id. at 278-279.

[26]
Id. at 378-381.

[27]
Id. at 282-296.

[28]
Id. at 405-409.

[29]
Id. at 410-416; 420.

[30]
Record, CA-G.R. SP No. 93841, pp. 2-3.

[31]
Id. at 7.

[32]
Id. at 8-10.

[33]
Id. at 415-421; 422-452.

[34]
Id. at 818-819.

[35]
Id. at 819.

[36]
Id. at 820-841.

[37]
Id. at 859-860.

[38]
Rollo, pp. 25-26.

[39]
Ace Navigation Co., Inc. v. Court of Appeals, 392 Phil. 606, 613 (2000).

[40]
Casim v. Flordeliza, 425 Phil. 210, 220 (2002).

[41]
Producer's Bank of the Philippines v. Court of Appeals, 430 Phil. 812, 828 (2002).

[42]
Dayrit v. Philippine Bank of Communication, 435 Phil. 120, 128-129 (2002).

[43]
Cuevas v. Bais Steel Corporation, 439 Phil. 793, 806 (2002).

[44]
Heirs of Teofilo Gaudiano v. Benemerito, G.R. No. 174247, 21 February 2007, 516 SCRA 416,
55
424.

[45]
LTS Philippines. Corp. v. Maliwat, 489 Phil. 230, 235 (2005).

Laguna Metts Corporation v. Court of Appeals, G.R. No. 185220, July 27, 2009, 594 SCRA
[46]

139,143.

[47]
Videogram Regulatory Board v. Court of Appeals, 332 Phil. 820, 830 (1996).

R. Transport Corporation v. Philhino Sales Corporation, G.R. No. 148150, 12 July 2006, 494
[48]

SCRA 630, 639.

[49]
Sy v. ALC Industries, Inc. G.R. No. 168339, 10 October 2008, 568 SCRA 367, 375.

Republic v. Kenrick Development Corporation, G.R. No. 149576, 8 August 2006, 498 SCRA
[50]

220, 231.

[51]
Digital Microwave Corporation v. Court of Appeals, 384 Phil. 842, 848 (2000).

Moneytrend Lending Corporation v. Court of Appeals, G.R. No. 165580, 20 February 2006, 482
[52]

SCRA 705, 713.

[53]
Art. I. Sec. 6. Pending the completion of the Condominium Project, the ownership of the
Property shall remain with the Owner. Upon the organization of the condominium corporation for
the Condominium Project, the Owner shall transfer the ownership over the Property to the said
corporation, shall cause the registration of the transfer with the appropriate Registry of Deeds and
issuance of a new torrens title in the name of the said corporation.

Primelink Properties and Development Corporation v. Lazatin-Magat, G.R. No. 167379, 27 June
[54]

2006, 493 SCRA 444, 467; Aurbach v. Sanitary Wares Manufacturing Corporation, 259 Phil. 606,
624 (1989).

[55]
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course
of the business of the partnership or with authority of his co-partners, loss or injury is caused to
any person, not being a partner in the partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to act.

[56]
Muñasque vs. Court of Appeals, 224 Phil. 79, 90 (1985).

56
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO V. CRUZ, respondents.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B.

LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES
CHAMSAY and LUCIANO SALAZAR, respondents.

G.R. Nos. 75975-76 December 15, 1989

LUCIANO E. SALAZAR, petitioner,

vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG,
AVELINO V. CRUZ and the COURT OF APPEALS, respondents.

Belo, Abiera & Associates for petitioners in 75875.

Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos.
05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court
and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares),
American Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino stockholders shall not
interfere in ASI's choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate
only six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only among
themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and
marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners,
European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation
domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary
wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated
enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of
the directors of the corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto
as Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for

57
 (1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist
of nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of
the Corporation, three of the nine directors shall be designated by American-Standard, and the other
six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the
grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member
of the Executive Committee whose vote was required for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of
Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation
shall be owned by Philippine nationals.

The joint enterprise thus entered into by the Filipino investors and the American corporation prospered.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations between
the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint venture groups
in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting
was held. The meeting was presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz.
After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the
members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin
and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A.
Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr.
Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two
nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during
the past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member board of
directors, and the legal advice of Saniwares' legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of stockholders present that a vote be taken on the
ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote
on the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes
present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E.
Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo,
AC-G.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles
Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders
announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo,
AC-G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in favor of
the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified
for the election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to
adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried
and declared the meeting adjourned. Protests against the adjournment were registered and having
been ignored, Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The Chairman then
threatened to have the stockholders who did not agree to the decision of the Chairman on the
casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders,
allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued meeting was presided by Luciano
E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin,
David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five
directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the
explanation that there was a tie among the other six (6) nominees for the four (4) remaining positions
of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
58
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange
Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo,
Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for
quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E.
Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz
claimed to be the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the
election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group
and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by
Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a
new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the
Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals)
rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and
Charles Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE

RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN
FACT THERE WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR
FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS
DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT
LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements

entered into by stockholders and the replacement of the conditions of such agreements with terms
never contemplated by the stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the property rights of
stockholders without due process of law in order that a favored group of stockholders may be
illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 14-15,
Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY
ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS
HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined:

59
(1) the nature of the business established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in accordance with the rules
governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC
MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should
be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention
was to form a corporation and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)

They object to the admission of other evidence which tends to show that the parties' agreement was to establish a
joint venture presented by the Lagdameo and Young Group on the ground that it contravenes 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 pleading that the "Agreement" failed to express the true intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is
to be considered as containing all such terms, and therefore, there can be, between the parties and
their successors in interest, no evidence of the terms of the agreement other than the contents of the
writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and
agreement of the parties or the validity of the agreement is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim
in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim
being partners or joint venturers such disclaimer is directed at third parties and is not inconsistent
with, and does not preclude, the existence of two distinct groups of stockholders in Saniwares one of
which (the Philippine Investors) shall constitute the majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over
the former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted
together attributing to the doubtful ones that sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code).
(Part I, Original Records, SEC Case No. 2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the question whether they intended by their
agreement to create a joint adventure, or to assume some other relation is a question of fact for the
jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW
725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)

In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence
presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a
corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC:

60
 According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI
in behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-
vis the Philippine National group of investors, on the condition that the Agreement should contain
provisions to protect ASI as the minority.

An examination of the Agreement shows that certain provisions were included to protect the
interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain
enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this member is required for certain
transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-
laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president
and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares
shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export
"Standard" products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid
royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of
directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement)
an effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate the other 6, clearly indicate that there are two
distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as
the minority stockholder.

Premises considered, we believe that under the Agreement there are two groups of stockholders
who established a corporation with provisions for a special contractual relationship between the
parties, i.e., ASI and the other stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the
nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that
Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and liabilities to third parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local
firm are constrained to seek the technology and marketing assistance of huge multinational corporations of the
developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in
exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is
always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole or
monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the Philippine
waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and
becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing to
say the least. To the extent that such subversive actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal requirements reserve controlling ownership to
Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal

In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed by the parties thereto,
may provide that in exercising any voting rights, the shares held by them shall be voted as therein
61
provided, or as they may agree, or as determined in accordance with a procedure agreed upon by
them.

Appellants contend that the above provision is included in the Corporation Code's chapter on close
corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly,
although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95
stockholders are not separate from each other but are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders.
The YoungYutivo family count for another 13 stockholders, the Chamsay family for 8 stockholders,
the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one
family and/or business or interest group are considered as one (which, it is respectfully submitted,
they should be for purposes of determining how closely held Saniwares is there were as of 8 March
1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close corporation because it has more
than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants
cannot honestly claim that Saniwares is a public issue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint venture corporations and
have not rigidly applied principles of corporation law designed primarily for public issue corporations.
These courts have indicated that express arrangements between corporate joint ventures should be
construed with less emphasis on the ordinary rules of law usually applied to corporate entities and
with more consideration given to the nature of the agreement between the joint venturers (Please
see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des
Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C.
495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool,
Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of
Joint Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with legal
questions as to the extent to which the requirements arising from the corporate form of joint venture
corporations should control, and the courts ruled that substantial justice lay with those litigants who
relied on the joint venture agreement rather than the litigants who relied on the orthodox principles of
corporation law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional
pattern of corporation management. A noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint venture corporations often contain provisions which
do one or more of the following: (1) require greater than majority vote for shareholder and director
action; (2) give certain shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of employees; and (4)
set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close Corporations,
1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed only in close corporations. As Campos and
Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily
imply that these agreements can be valid only in close corporations as defined by the Code?
Suppose that a corporation has twenty five stockholders, and therefore cannot qualify as a close
corporation under section 96, can some of them enter into an agreement to vote as a unit in the
election of directors? It is submitted that there is no reason for denying stockholders of corporations
other than close ones the right to enter into not voting or pooling agreements to protect their
interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not
parties to the agreement. Of course, voting or pooling agreements are perhaps more useful and
more often resorted to in close corporations. But they may also be found necessary even in widely
held corporations. Moreover, since the Code limits the legal meaning of close corporations to those
which comply with the requisites laid down by section 96, it is entirely possible that a corporation
which is in fact a close corporation will not come within the definition. In such case, its stockholders
should not be precluded from entering into contracts like voting agreements if these are otherwise
valid. (Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of
directors restricts the right of the Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which
include appellants. (Rollo No. 75951, pp. 90-94)
62
In regard to the question as to whether or not the ASI group may vote their additional equity during elections of
Saniwares' board of directors, the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in the management of the
corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors
shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino
stockholders. This allocation of board seats is obviously in consonance with the minority position of
ASI.

Having entered into a well-defined contractual relationship, it is imperative that the parties should
honor and adhere to their respective rights and obligations thereunder. Appellants seem to contend
that any allocation of board seats, even in joint venture corporations, are null and void to the extent
that such may interfere with the stockholder's rights to cumulative voting as provided in Section 24 of
the Corporation Code. This Court should not be prepared to hold that any agreement which curtails
in any way cumulative voting should be struck down, even if such agreement has been freely
entered into by experienced businessmen and do not prejudice those who are not parties thereto. It
may well be that it would be more cogent to hold, as the Securities and Exchange Commission has
held in the decision appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and implement specific
purposes, as in joint venture relationships between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.

In any event, it is believed that we are not here called upon to make a general rule on this question.
Rather, all that needs to be done is to give life and effect to the particular contractual rights and
obligations which the parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and the contractual allocation of
board seats Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative
voting should also be protected.

In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further
reflection, we feel that the proper and just solution to give due consideration to both factors suggests
itself quite clearly. This Court should recognize and uphold the division of the stockholders into two
groups, and at the same time uphold the right of the stockholders within each group to cumulative
voting in the process of determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino stockholders
cannot agree who their six nominees will be, a vote would have to be taken among the Filipino
stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI,
however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI
would be able to designate more than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their
additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the
right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites
section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board of directors or governing
body of corporations or associations engaging in partially nationalized activities shall be allowed in
proportion to their allowable participation or share in the capital of such entities. (amendments
introduced by Presidential Decree 715, section 1, promulgated May 28, 1975)

The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query,
however, is whether or not that provision is applicable to a joint venture with clearly defined agreements:

The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it
has been generally understood to mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their
elements are similar community of interest in the business, sharing of profits and losses, and a

63
 mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95
P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The
main distinction cited by most opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App.
170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel
266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the law of partnerships.
The Supreme Court has however recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership contract, it may however engage
in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of
joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the
ASI Group may vote their additional equity lies in the agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of
director seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative
voting in the process of determining who the group's nominees would be under Section 3 (a) (1) of the "Agreement."
As pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating the members of the
board of directors while Section 3 (a) (1) relates to the manner of voting for these nominees.

This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of
directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to
them would obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise,
ASI would be able to designate more than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the consideration as regards the
possible domination by the foreign investors of the enterprise in violation of the nationalization requirements
enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position
is that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to their share in the capital of
the entity. It is to be noted, however, that the same law also limits the election of aliens as members of the board of
directors in proportion to their allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings,
this limitation of six to three board seats should always be maintained as long as the joint venture agreement exists
considering that in limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon
and embodied in the parties' Agreement to protect the interests arising from the minority status of the foreign
investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the
appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo,
Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly
elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting
during the election of the board of directors of the enterprise as ruled by the appellate court and submits that the six
(6) directors allotted the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the
Agreement which uses the word "designate" meaning "nominate, delegate or appoint."

64
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are
allowed to select their nominees separately and not as a common slot determined by the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be
interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated
earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative voting while section
5(a) relates to the manner of nominating the members of the board of directors. The petitioners in G.R. No. 75951
agreed to this procedure, hence, they cannot now impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure
cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on the directors thus
elected being genuine members of the Filipino group, not voters whose interest is to increase the ASI share in the
management of Saniwares. The joint venture character of the enterprise must always be taken into account, so long
as the company exists under its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed. They should be maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R.
No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs.
Wolfgang Aurbach John Griffin, David 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.

Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.

Feliciano, J., took no part.

65
 FIRST DIVISION

G.R. No. 124293 November 20, 2000

JG SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents.

DECISION

YNARES-SANTIAGO, J.:

On January 27, 1977, the National Investment and Development Corporation (NIDC), a government corporation,
entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (Kawasaki) for
the construction, operation, and management of the Subic National Shipyard, Inc. (SNS), which subsequently
became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, NIDC and Kawasaki
would maintain a shareholding proportion of 60%-40%, respectively. One of the provisions of the JVA accorded the
parties the right of first refusal should either party sell, assign or transfer its interest in the joint venture. Thus,
paragraph 1.4 of the JVA states:

"Neither party shall sell, transfer or assign all or any part of its interest in SNS to any third party without giving the
other under the same terms the right of first refusal. This provision shall not apply if the transferee is a corporation
owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate." (Italics supplied.)

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National
Bank (PNB). More than two months later or on February 3, 1987, by virtue of Administrative Order No. 14, PNB’s
interest in PHILSECO was transferred to the National Government.

Meanwhile, on December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title to and possession of,
conserve, manage and dispose of non-performing assets of the National Government. On February 27, 1987, a trust
agreement was entered into between the National Government and the APT by virtue of which the latter was named
the trustee of the National Government’s share in PHILSECO. In 1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the National Government’s shareholdings in PHILSECO increased
to 97.41% thereby reducing Kawasaki’s shareholdings to 2.59%.

Exercising their discretion, the COP and the APT deemed it in the best interest of the national economy and the
government to privatize PHILSECO by selling 87.67% of its total outstanding capital stock to private entities. After a
series of negotiations between the APT and Kasawaki, they agreed that the latter’s right of first refusal under the
JVA be "exchanged" for the right to top by five percent (5%) the highest bid for said shares. They further agreed that
Kawasaki 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 that Philyards Holdings, Inc. (PHI) would exercise its right to top by
5%.

At the pre-bidding conference held on September 28, 1993, interested bidders were given copies of the JVA
between NIDC and Kawasaki, and of the Asset Specific Bidding Rules (ASBR) drafted for the 87.67% equity (sic)1 in
PHILSECO of the National Government. Salient provisions of the ASBR state:

"1.0. The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Government’s
equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECO’s oustanding
capital stock), which will be sold as a whole block in accordance with the rules herein enumerated.

xxx xxx xxx

3.0. This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National
Government’s 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(P1,300,000,000.00).
66
 xxx xxx xxx

12.0. The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms,
including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be
responsible for informing itself with respect to any and all conditions concerning the PHILSECO Shares which may,
in any manner, affect the bidder’s proposal. Failure on the part of the bidder to so examine and inform itself shall be
its sole risk and no relief for error or omission will be given by APT or COP. x x x."

The provisions of the ASBR were explained to the interested bidders who were notified that bidding would be held
on December 2, 1993.

At the public bidding on said date, the consortium composed of petitioner JG Summit Holdings, Inc., Sembawang
Shipyard Ltd. of Singapore (Sembawang), and Jurong Shipyard Limited of Malaysia (Jurong), was declared the
highest bidder at P2.03 billion. The following day, December 3, 1993, the COP approved the sale of 87.67%
National Government shares of stock in PHILSECO to said consortium. It notified petitioner of said approval "subject
to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMI’s (petitioner’s) bid by 5% as
specified in the bidding rules."

On December 29, 1993, petitioner informed the APT that it was protesting the offer of PHI to top its bid on the
grounds that: (a) the Kawasaki/PHI consortium composed of Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI
and Insular Life violated the ASBR because the last four (4) companies were the losing bidders (for P1.528 billion)
thereby circumventing the law and prejudicing the weak winning bidder; (b) only Kawasaki could exercise the right to
top; (c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first
refusal can be exercised in a public bidding or auction sale, and (e) the JG Summit Consortium was not estopped
from questioning the proceedings.

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject
bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and
that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a
Stock Purchase Agreement.

Consequently, petitioner filed with this Court a petition for mandamus under G.R. No. 114057. On May 11,1994,
said petition was referred to the Court of Appeals ---

"x x x for proper determination and disposition, pursuant to Section 9, paragraph 1 of B.P. 129, granting the Court of
Appeals ‘original jurisdiction to issue writs of mandamus x x x and auxiliary writs or processes, whether or not in aid
of its appellate jurisdiction,’ which jurisdiction is concurrent with this Court, there being no special and important
reason for this Court to assume jurisdiction over the case in the first instance."2

On July 18, 1995, the Court of Appeals "denied" for lack of merit the petition for mandamus. Citing Guanio v.
Fernandez,3 it held that mandamus is not the proper remedy to "compel the undoing of an act already done or the
correction of a wrong already perpetuated, even though the action taken was clearly illegal." It was further ruled that
it was not the proper forum for a "mere petition for mandamus" that aimed to question the constitutionality or legality
of the right of first refusal and the right to top that was exercised by Kawasaki/PHI and that the matter must be
brought "by the proper party in the proper forum at the proper time and threshed out in a full blown trial."

After ruling that the right of first refusal and the right to top are prima facie legal, the Court of Appeals found
petitioner to be in estoppel for the following reasons:

"5. If petitioner found the right to top to be illegal, it should not have participated in the public bidding; or it should
have questioned the legality of the rules before the courts or filed a petition for declaratory relief (Rule 64, Rules of
Court) before the public bidding could have taken place.

By participating in the public bidding, with full knowledge of the right to top granted to Kawasaki/Philyards, petitioner
is estopped from questioning the validity of the award given to Philyards after the latter exercised the right to top and
had paid in full the purchase price of the subject shares, pursuant to the ASBR.

6. The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance,
Mitsui and ICTSI) appears to have joined Philyards in the latter’s effort to raise P2.131 billion necessary in
exercising the right to top by 5% is a valid activity in free enterprise that is not contrary to law, public policy or public
morals. It should not be a cause of grievance for petitioner as it is the very essence of free competition in the
business world. Astute businessmen involved in the public bidding in question knew what they were up against. And
when they participated in the public bidding with prior knowledge of the right to top, they did so, with full knowledge
of the eventuality that the highest bidder may still be topped by Kawasaki/Philyards by 5%. It is admitted by
petitioner that it likewise represents a consortium composed of JG Summit, Sembawang Singapore and Jurong of
Malaysia. Why should petitioner then expect Philyards to limit itself to its own resources when the latter can enter

67
into agreements with other entities to help it raise the money it needed to pay the full purchase price as in fact it had
already paid the National Government in the amount of P2.131 billion as required under the ASBR?"4

Petitioner filed a motion for the reconsideration of said Decision which was denied on March 15, 1996. Petitioner
thus filed the instant petition for review on certiorari, raising the following arguments:

I.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT PETITIONER JG SUMMIT IS

LEGALLY ESTOPPED FROM CHALLENGING THE LEGALITY OF THE RIGHT TO TOP, INSERTED IN
THE BIDDING RULES, AS WELL AS THE RIGHT OF FIRST REFUSAL FROM WHICH THE RIGHT TO
TOP WAS ADMITTEDLY SOURCED, BY SIMPLY STATING THAT THOSE RIGHTS ARE VALID AND
ENFORCEABLE WITHOUT RULING ON ANY OF THE IMPORTANT LEGAL AND CONSTITUTIONAL
GROUNDS RAISED BY THE PETITIONER AS FOLLOWS:

(A) THE RIGHT OF FIRST REFUSAL, GRANTED TO A JAPANESE CORPORATION AT A TIME

WHEN IT HELD 40% EQUITY IN PHILSECO, A LANDHOLDING CORPORATION, IS NULL AND
VOID FOR BEING CONTRARY TO THE CONSTITUTION.

(B) THE RIGHT TO TOP WAS GRANTED TO THE JAPANESE CORPORATION AT A TIME WHEN
IT MERELY HELD 2.6% EQUITY IN PHILSECO.

(C) THE RIGHT OF FIRST REFUSAL GRANTED TO THE JAPANESE CORPORATION OVER
SHARES OF STOCK IS CONTRARY TO THE CORPORATION CODE.

(D) THE RIGHT TO TOP IS CONTRARY TO PUBLIC POLICY AS IT IS ANATHEMA TO

COMPETITIVE PUBLIC BIDDING FOR BEING UNDULY RESTRICTIVE THEREOF, AND,
MOREOVER, IS CONTRARY TO DUE PROCESS OF LAW AS IT IS AGAINST THE BASIC
RUDIMENTS OF FAIR PLAY.

(E) THE GRANT OF THE RIGHT TO TOP IS A CRIMINAL VIOLATION OF THE ANTI-GRAFT LAW
AS IT GIVES A CLEARLY UNWARRANTED BENEFIT IN FAVOR OF PHILYARDS AS SHOWN BY
CLEAR AND UNDISPUTED DOCUMENTARY EVIDENCE.

II.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING THAT MANDAMUS IS NOT A PROPER
REMEDY IN THIS CASE.

III.

FOLLOWING ITS OWN FINDINGS, THE COURT OF APPEALS GRIEVOUSLY ERRED (A) IN NOT
DIRECTING THAT TRIAL BE HELD ON ALLEGED ISSUES OF FACT AND (B) IN NOT APPOINTING
AN AMICUS CURIAE FROM AMONG THE LAWYERS IN THE COMMISSION ON AUDIT TO DETERMINE
THE APPLICABILITY OF ITS REQUIREMENTS TO THE TRANSACTIONS IN THIS CASE.5

In their comment on the petition, private respondent PHI contends that the real party in interest which should have
filed the petition for mandamus is the JG Summit Consortium and not solely petitioner JG Summit Holdings, Inc.
which is just a part of that consortium. Since Sembawang and Jurong, the other members of the consortium, are
indispensable parties to the petition,6 petitioner’s failure to implead them as co-petitioners warranted the dismissal of
the petition.

Public respondents’ contention must fail. While it is true that Rule 3, Section 2 of the Rules of Court provides that
"(a)ll persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as
plaintiffs," petitioner may file the petition alone. In the first place, Sembawang and Jurong are not indispensable
parties, such that their non-joinder as petitioners will not necessarily result in a failure to arrive at a final
determination of the case.7 They may be necessary parties as they were members of the consortium that won the
public 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 is a doubt as to whether or not said foreign corporations are
"subject to the jurisdiction of the court as to both service of process and venue."8 Thirdly, petitioner may be deemed
to represent Sembawang and Jurong. The admission of petitioner’s counsel that said foreign corporations are
underwriting his and the other counsel’s fees reflects this fact.9 By the nexus that binds the members of the
consortium, in the event that petitioner succeeds in pursuing this case, it is bound to respect the existence of the
consortium and the corresponding responsibilities arising therefrom.

68
Public respondents also contend that petitioner has no standing to question the legality of a provision of the JVA in
which it is not a party.10 However, as this Court held in Kilosbayan v. Morato,11 there is a difference between the rule
on real-party-in-interest and the rule on standing, as the latter has constitutional underpinnings. In the case at bar,
petitioner has sufficiently alleged constitutional ramifications in the questioned public bidding of the PHILSECO that
merit the attention of the Court. Moreover, the prospect of financial gains arising from the award of the sale of
PHILSECO is enough personal stake in the outcome of the controversy to vest upon petitioner the locus standi to
file the petition for mandamus. Besides, without Kawasaki-PHI’s right to top the highest bid, petitioner would have
been awarded the sale as the highest bidder. A winning bidder has personality to initiate proceedings to 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," or such interest in the subject matter of action as will entitle it, under substantive
law, to recover if the evidence is sufficient.13

With respect to the propriety of the remedy availed by petitioner, the Court of Appeals correctly held that the special
civil action of mandamus is not the proper remedy to question the legality of the exercise of the right to top by
private respondent. It does not lie to compel the award of a contract subject of bidding to an unsuccessful
bidder.14 Mandamus applies as a remedy only where petitioner’s right is founded clearly in law and not when it is
doubtful.15 Thus:

"In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a clear legal
right to the thing demanded and that it is the imperative duty of the respondent to perform the act required. It neither
confers powers nor imposes duties and is never issued in doubtful cases. It is simply a command to exercise a
power already possessed and to perform a duty already imposed."16

The Court of Appeals cannot declare petitioner as the winning bidder in this case and direct the COP/APT to award
the sale to it without first determining the validity of the right to top stipulated in the ASBR. Moreover, the sale of
government share in PHILSECO is a fait accompli, in view of the execution of the Stock Purchase Agreement
between APT and PHI. Mandamus may not be availed to direct the exercise of judgment or discretion in a particular
way or to retract or reverse an action already taken in the exercise of either.17

Be that as it may, the Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of
the special civil action of mandamus. It must be stressed that the petition was also one for certiorari, seeking to
nullify the award of the sale to private respondent of the PHILSECO shares. Verily, the petition alleges that
"respondents COP and APT have committed such a grave abuse of discretion tantamount to lack or excess of their
jurisdiction in insisting on awarding the bid to Philyards, for the various reasons stated herein, particularly since the
right of first refusal and the right to top the bid are 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 charged public respondent with
grave abuse of discretion in awarding the sale to private respondent. Well-settled is the rule that it is not the caption
of the pleading but the allegations therein that determine the nature of the action and the Court shall grant relief
warranted by the allegations and the proof even if no such relief is prayed for.19

Petitioner’s main contention is that PHILSECO, as a shipyard, is a public utility and, hence, could be operated only
by a corporation at least 60% of whose capital is owned by Filipino citizens, in accordance with Article XII, Section
10 of the Constitution. Petitioner asserts that a shipyard is a public utility pursuant to Section 13 (b) of
Commonwealth Act No. 146.20 Respondents, on the other hand, contend that shipyards are no longer public utilities
by express provision of Presidential Decree No. 666, which provided incentives to the shipbuilding and ship repair
industry.

Indeed, P.D. No. 666 dated March 5, 1975 explicitly stated that a "shipyard" was not a "public utility." Section 1
thereof provide as follows:

"d) Registration required but not as Public Utility. – The business of constructing and repairing vessels or parts
thereof shall not be considered a public utility and no Certificate of Public Convenience shall be required therefor.
However, no shipyard, graving dock, marine railway or marine repair shop and no person or enterprise shall engage
in the construction and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of
Registration and license for this purpose from the Maritime Industry Authority, except those owned or operated by
the Armed Forces of the Philippines or by foreign governments pursuant to a treaty or agreement." (Underscoring
supplied.)

However, Section 1 of P.D. No. 666 was expressly repealed by Section 20 of Batas Pambansa Blg. 391, the
Investment Incentive Policy Act of 1983.21 Subsequently, Executive Order No. 226, the Omnibus Investments Code
of 1987, was issued and Section 85 thereof expressly repealed B.P. Blg. 391.22

The express repeal of B.P. Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No. 666, declassifying the
shipbuilding and ship repair industry as a public utility, as said executive order did not provide otherwise. When a
law which expressly repeals a prior law is itself repealed, the law first repealed shall not be thereby revived unless
expressly so provided.23 Consequently, when the APT drafted the ASBR sometime in 1993, P.D. No. 666 no longer
existed in our statute books. While it is true that the repeal of a statute does not operate to impair rights that have

69
become vested or accrued while the statute was in force, there are no vested rights of the parties that should be
protected in the case at bar. The reason is simple: said decree was already inexistent when the ASBR was issued.

A shipyard such as PHILSECO being a public utility as provided by law, the following provision of the Article XII of
the Constitution applies:

"Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise,
certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The State shall encourage equity participation in public
utilities by the general public. The participation of foreign investors in the governing body of any public utility
enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of
such corporation or association shall be citizens of the Philippines." (Italics supplied.)

The progenitor of this constitutional provision, Article XIV, Section 5 of the 1973 Constitution, required the same
proportion of 60%-40% capitalization. The JVA between NIDC and Kawasaki entered into on January 27, 1977
manifests the intention of the parties to abide by the constitutional mandate on capitalization of public
utilities.24 Paragraph 1.3 of the JVA, as amended by Addendum No. 2 dated December 28, 1983,25 provides:

"The authorized capital stock of PHILSECO shall be P330 milion. The parties shall thereafter increase their
subscription in PHILSECO as may be necessary and as called by the Board of Directors, maintaining a proportion of
60%-40% for NIDC and KAWASAKI, respectively, up to a total subscribed and paid-up capital stock of P312
million." (Underscoring supplied.)

A joint venture is an association of persons or companies jointly undertaking some commercial enterprise with all of
them generally contributing assets and sharing risks. It requires a community of interest in the performance of the
subject matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by
agreement to share both in profit and losses.26 Persons and business enterprises usually enter into a joint venture
because it is exempt from corporate income tax.27 Considered more of a partnership,28 a joint venture is governed by
the laws on contracts and on partnership. The joint venture created between NIDC and Kawasaki falls within the
purview of an "association" pursuant to Section 5 of Article XIV of the 1973 Constitution and Section 11 of Article XII
of the 1987 Constitution. Consequently, a joint venture that would engage in the business of operating a public
utility, such as a shipyard, must observe the proportion of 60%-40% Filipino-foreign capitalization.

Notably, paragraph 1.4 of the JVA accorded the parties the right of first refusal "under the same terms." This phrase
implies that when either party exercises the right of first refusal under paragraph 1.4, they can only do so to the
extent allowed them by paragraphs 1.2 and 1.3 of the JVA or under the proportion of 60%-40% of the shares of
stock. Thus, 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 would not exceed 40% of the entire shares of stock of SNS or
PHILSECO. The NIDC, on the other hand, may purchase even beyond 60% of the total shares. As a government
corporation and necessarily a 100% Filipino-owned corporation, there is nothing to prevent its purchase of stocks
even beyond 60% of the capitalization as the Constitution clearly limits only foreign capitalization.

Parenthetically, the Maritime Industry Authority (MARINA) which has been tasked to regulate the operation of
shipbuilding and ship repair yards,29 abides by the Filipino capitalization requirement as far as corporations and
partnerships are concerned. However, Section 2.3.1 (a) of its Memorandum Circular No. 95, Series of 1994,30 setting
out the Revised Implementing Guidelines on the Licensing of Shipbuilders, Ship Repairers, Afloat Repairers,
Boatbuilders and Shipbreakers, seems to exempt joint ventures registered with the SEC, the BOI and the EPZA
from the 60% requirement of Filipino ownership.31 The said provision states:

"The applicant must be a Filipino citizen or a corporation/partnership at least 60% of the authorized capital stock of
which is owned by Filipino citizens except for joint ventures which are registered with the Securities and Exchange
Commission, the Board of Investments and/or Export Processing Zone Authorities."32

The constitutionality of said MARINA guideline, however, is not in issue here. Kawasaki was bound by
its contractual obligation under the JVA that limits its right of first refusal to 40% of the total capitalization of
PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the joint venture on
account of both constitutional and contractual proscriptions.

From the facts on record, it appears that at the outset, the APT and Kawasaki respected the 60%-40% capitalization
proportion in PHILSECO. However, APT subsequently encouraged Kawasaki to participate in the public bidding of
the National Government’s shareholdings of 87.67% of the total PHILSECO shares, definitely over and above the
40% limit of its shareholdings. In so doing, the APT went beyond the ambit of its authority.

70
It is well settled that the role of courts is to ascertain whether a branch or instrumentality of Government has
transgressed its constitutional or statutory boundaries. The courts, must examine those boundaries in the light of
provisions of the law. Otherwise, it would stray into the realm of policy decision-making.33

Proclamation No. 50, creating the COP and the APT, was issued by President Corazon C. Aquino pursuant to her
legislative powers under the Provisional Constitution of 1986. Section 12 of said Proclamation vested the APT with
the following powers:

(1) To formulate and, after approval by the Committee, implement a program for the disposition of assets
transferred to it under this Proclamation, such program to be completed within a period of five years from the
date of the issuance of this Proclamation;

(2) Subject to its having received the prior written approval of the Committee to sell such asset at a price and
on terms of payment and to a party disclosed to the Committee, to sell each asset referred to it by the
Committee to such party and on such terms as in its discretion are in the best interest of the National
Government, and for such purpose to execute and deliver, on behalf and in the name of the National
Government, such deeds of sale, contracts and other instruments as may be necessary or appropriate to
convey title to such assets;

xxx xxx xxx

(7) To adopt its internal rules and regulations, to adopt, alter and use a seal which shall be judicially noticed;
to enter into contracts; to sue and be sued;

xxx xxx x x x"

Pursuant to these provisions, the APT drafted the ASBR. Since the APT’s rule-making authority is merely delegated,
the ASBR should be measured by the standard set by said proclamation.34 Notably, the discretion granted by the
proclamation to the APT for the sale of government property is circumscribed only by the "best interest of the
National Government."

Implicitly written in any delegated legislative authority, such as that provided for in Proclamation No. 50, is the
requisite that the rules and regulations which an administrative body adopts must respect pertinent provisions of the
Constitution and the law.35 Article XII, Section 11 of the Constitution providing for a 60% Filipino capitalization in
order that public utilities may be granted a franchise should thus be deemed a paramount consideration in drafting
the ASBR. In this regard, worth noting is paragraph 15.0 of the ASBR, which provides that:

"In the event that the winning bidder is a 100% foreign-owned corporation, it may name its nominee corporation to
whom the NG shares shall be conveyed, provided it owns 40% equity in the nominee corporation, so as not to affect
PHILSECO’s qualification to own real estate properties in the Philippines."

This rule is fraught with dangerous implications. It allows a completely foreign corporation to participate in the public
bidding of more than 60% of the total shares of a public utility corporation without setting a period within which the
foreign bidder should name its nominee. As it is, the rule allows a totally foreign investor to engage in the business
of operating a public utility for an unlimited period of time in total disregard of the constitutional proscription on the
percentage of Filipino ownership of corporations engaged therein. Paragraph 15.0 of the ASBR is thus directly and
openly repugnant to the Constitution considering that it allows foreign corporations to operate a public utility for an
unlimited period of time.

In carrying out its objective of disposing of government property, the APT should take into account the pertinent
laws. Since the method of disposing the PHILSECO that the APT had adopted was through public bidding, it was
duty-bound to follow the rules and regulations on competitive public bidding, in order to uphold the elementary rule
on fairness in such disposition. As this Court once said:

"x x x. A competitive public bidding aims to protect the public interest by giving the public the best possible
advantages through open competition. It is a mechanism that enables the government agency to avoid or preclude
anomalies in the execution of public contracts."36

The word "bidding" in its comprehensive sense means making an offer37 or an invitation to prospective contractors
whereby the government manifests its intention to make proposals38 for the purchase of supplies, materials and
equipment for official business or public use,39 or for public works or repair. The three principles in public bidding are:
the offer to the public; an opportunity for competition; and a basis for exact comparison of bids. The distinctive
character of the system is destroyed and the purpose of its adoption is thwarted when a regulation thereon excludes
any of these principles.40 Public bidding of government contracts and for the disposition of government assets should
have the same principles and objectives. Their only difference, if at all, is that in the public bidding for public
contracts, the award is generally given to the lowest bidder while in the disposition of government assets, the award

71
is to the highest bidder.41 The term "public bidding" imports a sale to the highest bidder with absolute freedom for
competitive bidding.42

Under Section 504 of the Government Auditing Rules and Regulations, a public auction, which is the mode of
divestment or disposal of government property, shall adhere to established mechanics and procedures in public
bidding.43 In such public auction sales, the presence of a Commission on Audit (COA) representative who shall see
to the proper observance of auditing rules is imperative.44 In this case, there is no record that a COA representative
witnessed the public auction on December 2, 1993. Neither is there a showing that the APT observed the
requirement of COA Circular No. 89-296, to the effect that a government entity that is disposing of government
property shall furnish the COA with the disposal procedure adopted. Likewise, nowhere in the record is it stated that
the APT heeded the suggestion of Secretary of Finance and COP Chairman Jayme that its decision to grant
Kawasaki the right to top the highest bid be made "known to the Commission on Audit." What appears on record is
that the COA did not approve the ASBR, specifically the provision on the right to top the highest bidder. Thus, then
COA Chairman Pascasio S. Banaria, replying to the query of petitioner’s counsel on whether or not the COA had
approved the right to top the highest bid by 5%, stated:

"Per information received from our Auditor at APT, no prior approval was issued by their Office regarding said
preferential option. We have instructed our Auditor thereat to advise this Office of the result of the review of the
Corporation’s procedures for the sale of the assets including the review of the bidding documents pertaining to the
subject public bidding pursuant to the provisions of the Commission on Audit Circular No. 89-296 dated January 27,
1989."45

In according the KHI/PHI the right to top, the APT violated the rule on competitive public bidding, under which the
highest bidder is declared the winner entitled to the award of the subject of the auction sale. In effect, the grant to
KHI/PHI of the right to top can be likened to a second bidding, which, however, is allowed only if there is a failure of
bidding, such as when there is only one bidder or none at all.46 By placing KHI/PHI in the advantageous position of
topping the highest bidder, the APT set aside the basic rule in public bidding that there be an opportunity for
competition.

While it may be argued that the right to top was aimed at giving the best financial advantage to the government, the
manner by which that right was conceived and arrived at in this case manifested bias in favor of KHI, thereby clearly
brushing aside the rule on fair competition. More importantly, the ASBR provision on the right to top the highest
bidder completely disregarded the stipulation in the JVA between NIDC and KHI to comply with the 60%-40%
capitalization arrangement whereby KHI, the foreign investor, would be able to exercise its right of first refusal to the
extent of only 40% of the total capitalization of the PHILSECO. Thus, KHI, whose investment exposure was already
diminished to only 2.59% of the total PHILSECO shares, was given the privilege, through its nominee PHI, of
exercising the right to top the highest bid to 87.67% of those shares or definitely over and above its 40% contractual
right to PHILSECO shares under the JVA. Consequently, the APT rendered nugatory the constitutional and
contractual proscriptions clearly to favor a foreign investor.

Furthermore, while the right of first refusal entitled KHI to priority in the award of the contract, that right cannot bar
another bidder from submitting a bid because, precisely, the law requires public bidding in government
contracts.47 Thus, by engrafting in the provisions of the ASBR the right to top, which was only an offshoot of the right
of first refusal, the APT effectively did away with pubic bidding insofar as KHI/PHI was concerned. To be sure, the
right to top is different from the right to match. In the latter, a qualified bidder is given the privilege of offering the
same bid as that of the highest bidder.48 In the former, as provided for by the ASBR, a non-bidder is accorded the
right to top the highest bid. There is reason, therefore, for the petitioner to complain that the APT made a show of a
public bidding in order to elicit the highest bid, only to award the sale to a non-bidder. The unfair manner by which
the purported public bidding was conducted by the APT is even made more blatant by the fact that after the "public
bidding," KHI exercised the right to top through its nominee, private respondent PHI, which has among its
stockholders some losing bidders.

In drafting the ASBR, the APT should have noted the fact that foreign investors were competing in the bidding.
While it is true that foreign investment should be encouraged in this country, however, the ASBR provision on the
right to top is unfair to all competitors, be they foreign or local, in the public auction of 87.67% of PHILSECO shares
as it provided for a method that would set at naught the entire public bidding.

It was thus error for the Court of Appeals to conclude that petitioner was estopped from contesting the validity of the
ASBR and the bidding procedure conducted pursuant to it. It is clear from the provisions of the ASBR itself that the
basic rules on fair competition in public biddings have been disregarded. Although petitioner had the opportunity to
examine the ASBR before it participated in the bidding, it cannot be estopped from questioning the unconstitutional,
illegal and inequitable provisions thereof. Estoppel is unavailing in this case; otherwise, it would stamp validity to an
act that is prohibited by law or against public policy.49

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of
the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two
Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision.
In turn, APT is ordered to:
72
 (a) accept said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.67% of PHILSECO’s
total capitalization;

(d) return to private respondent PHI the amount of Two Billion One Hundred Thirty One Million Five Hundred
Thousand Pesos (P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

Footnotes

1
The heading of the ASBR states that the same rules were specifically set up for "97.4% equity of the
national government in Philippine Shipyard & Engineering Corporation (PHILSECO)" (Rollo of CA-G.R. SP
No. 34208, p. 46).

2
CA Record, p. 135; CA-G.R. SP No. 34208.

3
55 Phil. 814 (1931).

4
Rollo, pp. 209-210.

5
Petition, pp. 15-16.

6
Rollo, pp. 284-288.

7
Rules of Court, Rule 3, Sec. 7.

8
Sec. 8, supra.

9
CA Record, p. 473; TSN, March 2, 1995, pp. 99-100.

10
Rollo, pp. 38-40.

11
316 Phil. 652, 695 (1995).

12
See: Republic v. NLRC, 314 Phil. 507, 538.

13
Kilosbayan v. Morato, supra at p. 698.

14
Borromeo v. City of Manila, 62 Phil. 512 (1935).

Garces v. Court of Appeals, 328 Phil. 403, 409 citing University of San Agustin v. Court of Appeals, G.R.
15

No. 100588, 230 SCRA 761 (1994); Tamano v. Manglapus, G.R. No. 102787, 214 SCRA 567 (1992);
Sanson v. Barrios, 63 Phil. 199 (1936), and Marcelo v. Tantuico, Jr., G.R. No. 60074, 142 SCRA 439 (1986).

16
Lim Tay v. Court of Appeals, G.R. No. 126891, 293 SCRA 634, 653 (1998) citing University of San Agustin,
Inc. v. Court of Appeals, supra at pp. 771-772.

17
Angchangco, Jr. v. Hon. Ombudsman, 335 Phil. 766, 771-772 (1997).

18
CA Record, pp. 42-43.

19
Solid Homes, Inc. v. Court of Appeals, 337 Phil. 605, 613 (1997).

73
 The term "public service" includes every person that now or hereafter may own, operate, manage, or
20

control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent,
occasional or accidental, and done for general business purposes, any common carrier, railroad, street
railway, traction railway, sub-way motor vehicle, either for freight or passenger, or both with or without fixed
route and whatever may be its classification, freight or carrier service of any class, express service,
steamboat, or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers
or freight or both, shipyard, marine railway, marine repair shop, wharf or dock, ice plant, ice-refrigeration
plant, canal, irrigation system, gas, electric light, heat and power, water supply and power, petroleum,
sewerage system, wire or wireless communications system, wire or wireless broadcasting stations and other
similar public services x x x. (Emphasis supplied)

21
The repealing clause states:

"Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2) Section 1, P. D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P. D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and

5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49(d), 62, and 77.
Articles 45, 46 and 48 are hereby amended only with respect to domestic and export producers.

All other laws, decrees, executive orders, administrative orders, rules and regulations or parts
thereof which are inconsistent with the provisions of this Act are hereby repealed, amended or
modified accordingly.

All other incentive systems which are not in any way affected by the provisions of this Act may be
restructured by the President so as to render them cost-efficient and to make them conform with the
other policy guidelines in the declaration of policy provided in Section 2 of this Act."

22
"ART. 85. Repealing Clause. – The following provisions or laws are hereby repealed:

1) Batas Pambansa 44

2) Batas Pambansa 391 (1983)

3) Presidential Decree No. 218

4) Presidential Decree No. 1419

5) Presidential Decree No. 1623, as amended

6) Presidential Decree No. 1789 (1981)

7) Presidential Decree No. 2032

8) Executive Order No. 815

9) Executive Order No. 1945 (1985)

All other laws, decrees, executive orders, administrative orders, rules and regulations or parts
thereof which are inconsistent with the provisions of this Code are hereby repealed, amended or
modified accordingly."

23
Administrative Code of 1987, Book I, Chapter 5, Section 21.

24
CA Record, pp. 53-69.

25
CA Record, pp. 71-72.

26
Kilosbayan, Incorporated v. Guingona, Jr., supra, at p. 144.
74
27
VILLANUEVA, PHILIPPINE CORPORATE LAW, 1998 ed., p. 729.

28
Aurbach v. Sanitary Wares Manufacturing Corporation, G.R. No. 75875, 180 SCRA 130, 147 (1989).

29
P.D. No. 1059.

This was published in the Malaya on December 30, 1994 and submitted to the U.P. Law Center on January
30

3, 1995.

31
Chapter II, Book II of Executive Order No. 226 provides:

ART. 46. Permitted Investments. – (1) Without need of prior authority, anyone not a Philippine
national as that term is defined in Article 15 of this Code, and not otherwise disqualified by law, may
invest:

(a) In any enterprise registered under Book One hereof, to the extent that the total investment of
non-Philippine nationals therein would not affect its status as a registered enterprise under the law;

(b) In an enterprise not registered under Book One hereof, to the extent that the total investment of
non-Philippine nationals herein shall not exceed forty percent (40%) of the outstanding capital of that
enterprise, unless existing law forbids any non-Philippine ownership in the enterprise or limits
ownership by non-Philippine national to a percentage smaller than forty percent (40%).

(2) Within thirty (30) days after notice 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.

There is no record showing that the joint venture between NIDC and Kawasaki was registered with the
32

SEC, the Board of Investments and/or Export Processing Zone Authorities.

33
Bureau Veritas v. Office of the President, G.R. No. 101678, 205 SCRA 705, 718 (1992).

34
Philippine Communications Satellite Corporation v. Alcuaz, G.R: No. 84818, 180 SCRA 218, 225 (1989).

35
Manila Prince Hotel v. GSIS, 335 Phil. 82, 101 (1997).

National Food Authority v. Court of Appeals, 323 Phil. 558, 574 (1996) citing Danville Maritime, Inc. v.
36

Commission on Audit, G.R. No. 85285, 175 SCRA 701 (1989) and Malaga v. Penachos, Jr., G.R. No.
86695, 213 SCRA 516 (1992).

LUCENARIO, LAW ON PUBLIC BIDDING AND GOVERNMENT CONTRACTS, 1960 ed., p. 1 citing
37

Mercer v. North Little Rock Special School District, 177 Ark. 127, 6 S.W.2d 16, 18.

38
Ibid., citing Art. 1326, Civil Code.

39
Ibid., citing Secs. 2041-2042 of Revised Administrative Code.

40
Malaga v. Penachos, Jr., G.R. No. 86695, 213 SCRA 516, 526 (1992).

41
Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285, 175 SCRA 701, 711 (1989).

42
Ibid., p. 712.

COA Circular No. 89-296 dated January 27, 1989, No. VI (1); GOVERNMENT ACCOUNTING AND
43

AUDITING MANUAL, Vol. I, p. 301.

44
The pertinent provision of COA Circular No. 89-296 states:

"VII. COA ROLE DURING DISPOSAL: -

In all modes or instances of disposal of government property or assets as hereinabove

contemplated, the proceedings shall be undertaken by the appropriate authority in the presence of
the Auditor or other COA representative who shall act as an intelligent, responsible and articulate

75
 witness thereto. The said act of witnessing shall not be confined merely to seeing what is being done
during the proceedings but shall be related to the more meaningful discharge by the Auditor of
his/her constitutional duty to examine, audit and settle all accounts pertaining to the expenditures or
uses of government funds and property. Thus, the Auditor acting as such witness may verbally
advise the agency head or his duly authorized representative of any objectionable feature/s of the
proceedings. Otherwise, he may sign documents and other papers pertinent only to those
proceedings which he witnessed with his comments which he deems necessary under the
circumstances. Related advices and/or comments done in writing should invariably be sent officially
to and duly receipted for by the head of the agency or his duly authorized representative concerned.
These written advices or comments shall form part of the bases of action to be taken by the auditor
in the pre-audit or post audit of the subject transactions."

45
Rollo, p. 133.

46
Danville Maritime, Inc. v. Commission on Audit, supra. at p. 712.

47
See: Gov. Garcia v. Hon. Burgos, 353 Phil. 740, 767-768 (1998).

48
Manila Prince Hotel v. GSIS, supra, at p. 100. In that case, the bidding rules provided that "if for any
reason, the Highest Bidder cannot be awarded the Block of Shares, GSIS may offer this to the other
Qualified Bidders that have validly submitted bids provided that these Qualified Bidders are willing to match
the highest bid in terms of price per share."

49
Development Bank of the Philippines v. Court of Appeals, 348 Phil. 14, 32 (1998)

76
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