JG Summit Holdings INC. vs. Court of Appeals G.R. No.

124293 January 31, 2005 (Reported by

Joahna Paula Domingo) 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 or not the respondent is prohibited to possess the disputed property considering
the prohibition stipulated in the 1987 Constitution against foreign owned companies.

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.

Tocao and Belo vs Court of Appeals and Anay

Business Organization – Partnership, Agency, Trust – Dissolution of the Partnership

William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to
form a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million;
Tocao also contributed some cash and she shall also act as president and general
manager; and Anay shall be in charge of marketing. Belo and Tocao specifically asked
Anay because of her experience and connections as a marketer. They agreed further that
Anay shall receive the following:

1. 10% share of annual net profits

2. 6% overriding commission for weekly sales
3. 30% of sales Anay will make herself
4. 2% share for her demo services

They operated under the name Geminesse Enterprise, this name was however registered
as a sole proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture
agreement was not reduced to writing because Anay trusted Belo’s assurances.

The venture succeeded under Anay’s marketing prowess.

But then the relationship between Anay and Tocao soured. One day, Tocao advised one of
the branch managers that Anay was no longer a part of the company. Anay then demanded
that the company be audited and her shares be given to her.

ISSUE: Whether or not there is a partnership.

HELD: Yes, even though it was not reduced to writing, for a partnership can be instituted in
any form. The fact that it was registered as a sole proprietorship is of no moment for such
registration was only for the company’s trade name.
Anay was not even an employee because when they ventured into the agreement, they
explicitly agreed to profit sharing this is even though Anay was receiving commissions
because this is only incidental to her efforts as a head marketer.

The Supreme Court also noted that a partner who is excluded wrongfully from a partnership
is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits “realized from the appropriation
of the partnership business and goodwill.” An innocent partner thus possesses “pecuniary
interest in every existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.”

An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personaeallows the
partners to have the power, although not necessarily the right to dissolve the partnership.

Tocao’s unilateral exclusion of Anay from the partnership is shown by her memo to the
Cubao office plainly stating that Anay 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.

Read full text here.

NOTE: Motion for Reconsideration filed by Tocao and Belo decided by the SC on
September 20, 2001.

Belo is not a partner. Anay was not able to prove that Belo in fact received profits from the
company. Belo merely acted as a guarantor. His participation in the business meetings was
not as a partner but as a guarantor. He in fact had only limited partnership. Tocao also
testified that Belo received nothing from the profits. The Supreme Court also noted that the
partnership was yet to be registered in the Securities and Exchange Commission. As such,
it was understandable that Belo, who was after all petitioner Tocao’s good friend and
confidante, would occasionally participate in the affairs of the business, although never in a
formal or official capacity.
 TOCAO V. CA
G.R. No. 127405; October 4, 2000
Ponente: J. Ynares-Santiago

FACTS:

Private respondent Nenita A. Anay met petitioner William T. Belo, then the vice-
president for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire
to enter into a joint venture with her for the importation and local distribution of kitchen
cookwares

Under the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for
sales

The parties agreed that Belo's name should not appear in any documents relating to
their transactions with West Bend Company. Anay having secured the distributorship of
cookware products from the West Bend Company and organized the administrative staff
and the sales force, the cookware business took off successfully. They operated under
the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's
name.

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 the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo's assurances that he was sincere, dependable and
honest when it came to financial commitments.

On October 9, 1987, Anay learned that Marjorie Tocao had signed a letteraddressed to
the Cubao sales office to the effect that she was no longer the 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.

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 P 13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140

The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants. The Court of Appeals affirmed the lower court’s decision.

ISSUE:
Whether the parties formed a partnership

HELD:

Yes, the parties involved in this case formed a partnership

The Supreme Court held that 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.
In the case at hand, Belo acted as capitalist while Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for
sales. Furthermore, Anay was entitled to a percentage of the net profits of the business.

Therefore, the parties formed a partnership.