When a Contract of Lease mandates contribution into the venture on the part of the purported lessee, and makes the lessee participate not only in the revenues generated from the venture, and in fact absorb most of the risks involved therein, then a joint venture arrangement has really been constituted between the purported lessor and lessee, since under the Law on Partnership, whenever there is an agreement to contribute money, property or industry to a common fund, with an agreement to share the profits and losses therein, then a partnership arises. Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110 (1994).
In the Philippines, the prevailing school of though is that a joint venture is a species of partnership. Heirs of Tan Eng Kee v. Court of Appeals, 341 SCRA 740 (2000).42
When the purported primary venturer in a consortium (which is an association of corporation bound in a joint venture arrangement) declares unilaterally that the other four members are part of a consortium, but there is no affirmation from any of the other members, nor is there a showing of a community of interest, a sharing of risks, profits and losses in the project bidded for, then there is really no joint venture constituted among them, lacking the essential elements of what makes a partnership. Information Technology Foundation of the Philippines v. COMELEC, 419 SCRA 141 (2004).
Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular partnership or one which "has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation." The rule is settled that joint ventures are governed by the law on partnerships which are, in turn, based on mutual agency or delectus personae. Realubit v. Jaso, G.R. No. 178782, 21 September 2011.
II. JOINT VENTURE AGREEMENT (JVA) MUST BE CONSTRUED
ANDENFORCED
AS A CONTRACT BETWEEN AND AMONG CO-VENTURERS
When a “Joint Venture Agreement” has been executed among the co-venturers covering the terms for the development of a subdivision project, the contributions of the co-venturers and the manner of distribution of the profits, a partnership has been duly constituted under Art. 1767 of Civil Code, and although no inventory was prepared covering the parcels of land contributed to the venture, much less was a certificate of registrations filed with the SEC, the partnership was not void because (a) Art. 1773 is intended for the protection of the partnership creditors and cannot be invoked when the issue is between and among the partners; and (b) the alleged nullity of the partnership will not prevent courts from considering the JVA as an ordinary contract form which the parties rights and obligations to each other may be inferred and enforced. Torres v. Court of Appeals, 320 SCRA 428 (1999).
III. TYPES OF JOINT VENTURE ARRANGEMENTS
1. Informal or Contractual JV Arrangement Without a Separate Firm (SEC Opinion, 22 December 1966, SEC FOLIO 1960-1976; SEC Opinion, 29 February 1980; SEC Opinion, 03 Sept. 1984).
When the principal and the agent have entered into a power of attorney covering a construction project, with the principal contributing thereto his contractor’s license and expertise, while the agent 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 the principal, oversee the effective implementation of the project, for which the principal would receive as his share 3% of the project cost while the rest of the profits shall go to the agent, the parties have in effect entered into a partnership, and the revocation of the powers of management of the agent is deemed a breach of the contract. Mendoza v. Paule, 579 SCRA 349 (2009).
Although the parties executed the instrument as a “Power of Attorney” and referred to themselves as “Principal” and “Manager”, the contractual relationship created was not that of Agency or Management Contract. “A examination of the ‘Power of Attorney’ reveals that a partnership or joint venture was indeed intended by the parties. Under a contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. While a corporation, like petitioner, cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a joint venture which is akin to a particular partnership relationship: x x x 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. Philex Mining Corp. v. Commissioner of Internal Revenue, 551 SCRA 428 (2008).
2. As a Form of Partnership to Pursue the Enterprise as a Firm
Even when the wording of the instrument does not clearly provide for an option, and not a obligation, on the part of one of the co-venturers to make contributions into the business enterprise, will not detract from the legal fact that they constituted a partnership between themselves. “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 the option.” Philex Mining Corp. v. Commissioner of Internal Revenue, 551 SCRA 428 (2008).
42Reiterated in Primelink Properties and Dev. Corp. v. Lazatin-Magat, 493 SCRA 444 (2006); Information Technology Foundation of
A joint venture being a form of partnership, it is to be governed by the Law on Partnerships. In the JVA, the parties agreed on a 50-50 ratio on the proceeds of the project, although they did not provide for the splitting of losses, which therefore puts into application Art. 1797: the same ratio applies in splitting the obligation-loss of the joint venture. The appellate court's decision must be modified, however, there being a joint venture, there is no need for Gotesco to reimburse Marsman Drysdale for “50% of the aggregate sum due” to PGI since not 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. Marsman Drysdale Land, Inc. v. Philippine Geoanalytics, Inc., 622 SCRA 281 (2010).
A joint venture is considered in this jurisdiction as a form of partnership and is, accordingly, governed by the law of partnerships. Under Art. 1824 of Civil Code, all partners are solidarily liable with the partnership for everything chargeable to the partnership, including loss or injury caused to a third person or penalties incurred due to any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners. Whether innocent or guilty, all the partners are solidarily liable with the partnership itself. J. Tiosejo Investment Corp. v. Ang, 630 SCRA 334 (2010).
3. Through a Joint Venture Corporation
The manner of nomination of the members of the Board of Directors provided in the Joint Venture Agreement must be made effective and reconciled with the statutory provision on cumulative voting made applicable by the Corporation Code to stock corporations. Aurbach v. Sanitary Wares Mnfg. Corp., 180 SCRA 130 (1989).
A right of first refusal agreed to by the Government in the Joint Venture Agreement entered into with its co-venturer must be made to apply and be binding to the Government and the bidder at a public bidding held on the shares of the joint venture corporation constituted pursuant to the agreement. JG Summit Holdings, Inc. v. Court of Appeals, 412 SCRA 10 (2003).
4. NEDA 1998 GUIDELINES AND PROCEDURES FOR ENTERING INTO JOINT VENTURE (JV) ARRANGEMENTS BETWEEN GOVERNMENT AND PRIVATE ENTITIES
a. Definition of “Joint Venture” – “A contractual arrangement whereby a private sector entity or a group of private sector entities on one hand, and a Government Entity or a group of Government Entities on the other hand, contribute money-capital, services, assets (including equipment, land or intellectual property), or a combination of any or all of the foregoing. Parties to a JV share risks to jointly undertake an investment activity in order to accomplish a specific, limited or special goal or purpose with the end view of facilitating private sector initiative in a particular industry or sector, and eventually transferring ownership of the investment activity to the private sector under competitive market conditions. It involves a community or pooling of interest in the performance of the service, function, business or activity, with each party having a right to direct and govern the policy in connection therewith, and with a view of sharing both profits and losses, subject to agreement by the parties. A JV may be a contractual JV, or a corporate JV.”
b. Definition of “Contractual JV” – “A legal and binding agreement under which the JV partners shall perform the primary functions and obligations under the JV Agreement without forming a JV Company.”
c. Definition of “JV Company” – “An entity registered with the Securities and Exchange Commission (SEC) by the JV partners that shall perform the primary functions and obligations of the JV as stipulated under the JV Agreement. The JV Company shall possess the characteristics stipulated under these Guidelines.”