JG Summit Holdings v. CA, Sept. 24, 2003, G.R. No. 124293

JG Summit Holdings INC. vs. Court of Appeals | G.R. No. 124293 January 31, 2005

Facts:  The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard Inc., (SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO).

Under the JVA, the NDC and KAWASAKI will contribute P330M for the capitalization of PHILSECO in the proportion of 60%-40% respectively.  One of its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture.

NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to an Administrative Order.

When the former President 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, a trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Government’s share in PHILSECO.

In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Government’s share in PHILSECO to private entities.  After a series of negotiations between the APT and KAWASAKI , they agreed that the latter’s right of first refusal under the JVA be “exchanged” for the right to top by 5%, the highest bid for the said shares.  They further agreed that KAWASAKI woul.d be entitled to name a company in which it was a stockholder, which could exercise the right to top.  KAWASAKI then informed APT that Philyards Holdings, Inc. (PHI) would exercise its right to top.

At the public bidding, petitioner J.G. Summit Holdings Inc. submitted a bid of Two Billion and Thirty Million Pesos (Php2,030,000,000.00) with an acknowledgement of KAWASAKI/PHILYARDS right to top.

As petitioner was declared the highest bidder, the COP approved the sale “subject to the right of Kawasaki Heavy Industries, Inc. / PHILYARDS Holdings Inc. to top JG’s bid by 5% as specified in the bidding rules.”

On the other hand, the respondent by virtue of right to top by 5%, the highest bid for the said shares timely exercised the same.

Petitioners, in their motion for reconsideration, raised, inter alia, the issue on the maintenance of the 60%-40% relationship between the NIDC and KAWASAKI arising from the Constitution because PHILSECO is a landholding corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation.

ISSUE: Whether under the 1977 Joint Venture Agreement, KAWASAKI can purchase only a maximum of 40% of PHILSECO’s total capitalization.

The right of first refusal is meant to protect the original or remaining joint venturer(s) or shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture between the Philippine Government and KAWASAKI is in the nature of a partnership³⁶ which, unlike an ordinary corporation, is based on delectus personae.³⁷ No one can become a member of the partnership association without the consent of all the other associates. The right of first refusal thus ensures that the parties are given control over who may become a new partner in substitution of or in addition to the original partners. Should the selling partner decide to dispose all its shares, the non-selling partner may acquire all these shares and terminate the partnership. No person or corporation can be compelled to remain or to continue the partnership. Of course, this presupposes that there are no other restrictions in the maximum allowable share that the non-selling partner may acquire such as the constitutional restriction on foreign ownership in public utility. The theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECO’s shares is correct only if a shipyard is a public utility. In such instance, the non-selling partner who is an alien can acquire only a maximum of 40% of the total capitalization of a public utility despite the grant of first refusal. The partners cannot, by mere agreement, avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a public utility and no other restriction is present that would limit the right of KAWASAKI to purchase the Government’s share to 40% of Philseco’s total capitalization.

Furthermore, the phrase “under the same terms” in section 1.4 cannot be given an interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares only to the extent of its original proportionate contribution of 40% to the total capitalization of the PHILSECO. Taken together with the whole of section 1.4, the phrase “under the same terms” means that a partner to the joint venture that decides to sell its shares to a third party shall make a similar offer to the non-selling partner. The selling partner cannot make a different or a more onerous offer to the non-selling partner.

The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the conditions attendant to the sale for it to have a guided choice. While the right of first refusal protects the non-selling partner from the entry of third persons, it cannot also deprive the other partner the right to sell its shares to third persons if, under the same offer, it does not buy the shares.

Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does not contemplate transfer of a partner’s shares to third parties but the issuance of new Philseco shares. The grant of preemptive rights preserves the proportionate shares of the original partners so as not to dilute their respective interests with the issuance of the new shares. Unlike the right of first refusal, a preemptive right gives a partner a preferential right over the newly issued shares only to the extent that it retains its original proportionate share in the joint venture.

The case at bar does not concern the issuance of new shares but the transfer of a partner’s share in the joint venture. Verily, the operative protective mechanism is the right of first refusal which does not impose any limitation in the maximum shares that the non-selling partner may acquire.

RULING: The court upheld the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC.

The right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA.  This right allows them to purchase the shares of their co-shareholder before they are offered to a third party.  The agreement of co-shareholders to mutually grant this right to each other, by itself, does not constitute a violation of the provisions of the Constitution limiting land ownership to Filipinos and Filipino corporations.  As PHILYARDS correctly puts it, if PHILSECO still owns the land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40% ration.  This transfer by itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent.  The transfer could be made either to a nominee or such other party which the holder of the right of first refusal feels it can comfortably do business with.

Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40% of PHILSECO’s equity.  In fact, in can even be said that if the foreign shareholdings of a landholding corporation exeeds 40%, it is not the foreign stockholders’ ownership of the shares which is adversely affected but the capacity of the corporation to won land—that is, the corporation becomes disqualified to own land.

This finds support under the basic corporate law principle that the corporation and its stockholders are separate judicial entities.  In this vein, the right of first refusal over shares pertains to the shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land.

Tacao et al. v. CA, 342 SCRA 20

Tacao et al. v. CA, 342 SCRA 20

Facts: Petitioner William T. Bello introduced private respondent Nenita Anay to petitioner Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo acted the capitalist,Tocao as president and general manager, and Anay as head ofthe marketing department (considering her experience and established relationship with West Bend Company,c a manufacturer of kitchen wares in Wisconsin, U.S.A) and later,vice-president for sales. The parties agreed further that Anay would be entitled to:

(1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent (6%) of theoverall weekly production; (3) thirty percent (30%) of thesales she would make; and (4) two percent (2%) for herdemonstration services.

The same was not reduced to writing on the strength of Belo’sassurances.

Later, Anay was able to secure the distributorship of cookware products from the West Bend Company. They operated underthe name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s name. Anay attended distributor/dealer meetings with West Bend Company with theconsent of Tocao.

Due to Anay’s excellent job performance she was given a plaque of appreciation. Also, in a memo signed by Belo, Anaywas given 37% commission for her personal sales "up Dec31/87,” apart from the 10% share in profits

On October 9, 1987, Anay learned that Marjorie Tocao terminated her as vice-president of Geminesse Enterprise. Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. Belo did not answer.

Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although the company netted a gross sales of P13,300,360.00.

 On April 5, 1988, Nenita A. Anay filed a complaint for sum of money with damages against Tocao and Belo before the RTC of Makati. She prayed that she be paid (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she was “illegally dismissed” to determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) “overriding commission“ on the remaining 150 West Bend cookware sets before her “dismissal.”

However, Tocao and Belo asserted that the alleged agreement was not reduced to writing nor ratified, hence, unenforceable, void, or nonexistent. Also, they denied the existence of a  partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Belo also contended that he merely acted as a guarantor of Tocao and denied contributing capital. Tocao, on the other hand, denied that they agreed on a ten percent (10%) commission on the net profits.

Both trial court and court of appeals ruled that a business  partnership existed and ordered the defendants to pay.

Issue:

Whether or not a partnership existed – YES

Ratio:

 To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one.

Private respondent Anay contributed her expertise in the  business of distributorship of cookware to the partnership and hence, under the law, she was the industrial or managing  partner.

Petitioner Belo had an proprietary interest. He presided over meetings regarding matters affecting the operation of the  business. Moreover, his having authorized in writing giving Anay 37% of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business. This is inconsistent with his claim that he merely acted as a guarantor. If indeed he was, he should have  presented documentary evidence. Also, Art. 2055 requires that a guaranty must be express and the Statute of Frauds requires that it must be in writing. Petitioner Tocao was also a capitalist in the partnership. She claimed that she herself financed the business.

The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between  petitioners and private respondent. First, Anay had a voice in the management of the affairs of the cookware distributorship and second, Tocao admitted that Anay, like her, received only commissions and transportation and representation allowances and not a fixed salary. If Anay was an employee, it is difficult to believe that they recieve the same income. Also, the fact that they operated under the name of Geminesse Enterprise, a sole proprietorship, is of no moment. Said  business name was used only for practical reasons - it was utilized as the common name for petitioner Tocao’s various  business activities, which included the distributorship of cookware.

The partnership exists until dissolved under the law. Since the  partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner.

Petitioners Tocao’s unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the  partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business.

The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the  pertinent provisions of the Civil Code. Petitioners are ordered to pay Anay’s 10% share in the profits, after accounting, 5% overriding commission for the 150 cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioner, overriding commission on the total production, as well as moral and exemplary damages, and attorney’s fees

Ortega, et al. vs. CA, et al., 245 SCRA 529

Ortega, et al. vs. CA, et al., 245 SCRA 529

VITUG, J.: G.R. No. 109248. July 3, 1995.

Parties:

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners

HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

Nature: PETITION for review on certiorari of a decision of the Court of Appeals.

Keyword: law firm, partner, partnership at will, 

Facts: The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the articles of partnership:

-       18 September 1958 - ROSS, SELPH and CARRASCOSO

-       6 July 1965 - ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA

-       18 April 1972 - SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA

-       4 December 1972 - SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA

-       11 March 1977 - DEL ROSARIO, BITO, MISA & LOZADA

-       7 June 1977 - BITO, MISA & LOZADA

-       19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote a letter to the respondents-appellees stating that he was withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of the month. He also trust the accountants to do a proper liquidation based on his participation in the firm. On the same day, petitioner-appellant brought up that he wanted to have a meeting regarding the mechanics of liquidation, more particularly, the two floors of the firm’s building because he had plans for it.

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating that the partnership ceased to be mutually satisfactory despite his effort to ameliorate the level of pay scale of their employees due to disagreements with the other partners.

On 30 June 1988, petitioner filed with this Commission’s Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership.

SEC: held that Petitioner’s withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest.

SEC En Banc (On Appeal): Reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of “Bito, Misa & Lozada.” The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. Issue:

The parties filed with the appellate court separate appeals.

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA-G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the prayer.

CA: Affirmed the decision of SEC.

Issue:

1.Whether or not the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2.Whether or not the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith;

Held:

1. Yes. The partnership agreement of the firm provides that ”[t]he partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners.”

2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of thepartnership at will (e.g. by way of withdrawal of a partner). He must, however, act in goodfaith, not that the attendance of bad faith can prevent the dissolution of the partnership butthat it can result in a liability for damages

Ratio:

A partnership that does not fix its term is a partnership at will. That the law firm “Bito, Misa & Lozada,” and now “Bito, Lozada, Ortega and Castillo,” is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

“The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The ‘DURATION’ clause simply states:

“ ‘5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners.’

“The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

“‘2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so.’

“The ‘purpose’ of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or ‘project’ which has a definite or definable period of completion.”³

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner’s capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership⁴ but that it can result in a liability for damages.⁵

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner.⁶ Among partners,⁷ mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business.⁸ Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.⁹

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code;¹⁰

Ruling: WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Same Same:

Same; Same; The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.—The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner’s capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages.

Same; Same; Neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner.—In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. Among partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

Same; Same; Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.—The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.

Same; Same; The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code.—The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code; however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over the Code’s general provisions.

Same; Same; It would not be right to let any of the partners remain in the partnership under such an atmosphere of animosity.—On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by “interpersonal conflict” among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. Indeed, for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.