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FACTS:
ABC, Inc. owns a prime parcel of land in Calindagan. DEF approaches it and
proposes a joint venture to develop a planned community of condominiums, malls, and
service centers. Under the terms of the joint venture, ABC’s exposure shall only be
limited to its contribution of the land. DEF, on the other hand, shall finance the
development exclusively from its own resources, without utilizing the land as collateral
for a loan. To pursue the joint venture, the parties organize a new corporation, Montecillo
Arms Development Corporation., with ABC holding 30% and DEF owning 70% of the
equity. Soon after the joint venture company is formed, DEF requires ABC to assign its
land to the joint venture company. ABC is reluctant at first, because it would like DEF to
first put in a substantial portion of capital for the project as a counterpart. However, DEF
is very persuasive, and ABC assigns the property. Because of the assignment, however,
ABC acquires control of the joint venture company pursuant to the tax-free provision in
the Internal Revenue Code which requires that the owner of an asset exchanged for equity
must retain at least majority control of the corporation to which the property has been
transferred. In the meantime, DEF has not put in its capital, although it has succeeded in
interesting a few investors to acquire shares from the joint venture company. The
proceeds of these sales have been deposited in the joint venture company’ bank account.
After more than a year, DEF still has not introduced improvements on the property. ABC
then ousts the DEF representatives in the joint venture Board and takes control of the
company. DEF, however, refuses to surrender the company’s ban account.
ISSUE:
Will rescission of the joint venture agreement prosper? What consequences will it
have on all parties, including DEF’s investors to the joint venture company?
DISCUSSION:
No, rescission is not the proper remedy since this case involves corporate joint
venture. The Supreme Court in Tuason vs. Bolanos stated that, "while a corporation has
no power to enter into a partnership, it can validly enter into a Joint Venture agreement
where the nature of that venture is in line with the business authorised by its charter."
There is no Philippine law that expressly recognizes or governs the formation of joint
ventures however, the existence of which has been recognized by several jurisprudence
already. There are two types- the contractual joint venture and corporate joint venture,
are treated by Philippine tax law as corporate taxpayers for purposes of corporate income
tax.
Corporate Joint Ventures are undertaken by the formation of a new domestic
corporation that must be licensed by the SEC..The formation therefore is governed by the
Corporation Code. The Securities and Exchange Commission (SEC) licences and
regulates corporate joint ventures and are created like an ordinary domestic corporation.
There exist a corporate joint venture in the case at bar as when ABC, Inc. and DEF
agreed to form one and subsequently formed the Montecillo Arms Development
Corporation pursuant to a joint venture agreement. The provisions in the Corporation
Code apply, hence, the proper remedy would be dissolution and not rescission. The
Supreme Court in the case of Primelink Properties and Development Corporation v.
Lazatin-Magat said that "when the RTC rescinded the JVA on complaint of respondents
based on the evidence on record that petitioners willfully and persistently committed a
breach of the JVA, the court thereby dissolved/cancelled the partnership."
Furthermore, in Sancho v. Lizarraga, the SC ruled that owing to the defendant’s
failure to pay to the partnership the whole amount which he bound himself to pay, he
became indebted to the partnership for the remainder, with interest and any damages
occasioned thereby, but the plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to article 1124 of the Code. Article 1124
cannot be applied to the case in question, because it refers to the resolution of
obligations in general, whereas articles 1681 and 1682 specifically refer to the contract
of partnership in particular. And it is a well known principle that special provisions
prevail over general provisions.
REFERENCE:
-Joint ventures in the Philippines: overview by Perry L. Pe and Andrea Antonette A. Sese-Relucio, Romulo
Mabanta Buenaventura Sayoc & de los Angeles
https://uk.practicallaw.thomsonreuters.com/w-011-6852?
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