Joint Ventures in the Philippines

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12th May 2017

business hand pushing joint venture button

We can’t do everything by ourselves. Sometimes, we need a little help. Oftentimes, we need a joint venture.  

 

The Philippine Supreme Court has described a joint venture as an association of persons or companies jointly undertaking some commercial enterprise; generally, all contribute assets and share risks which requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and a duty, which may be altered by agreement to share both in profit and losses. [ Kilosbayan vs, Guingona, 232 SCRA 110 (1994)]

In the case of Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, [180 SCRA 130 (1989)], the Supreme Court further explained:

 

“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.  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.  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.  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.  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.”

 

Considering that a joint venture is a particular partnership, it would have the following characteristics:

1.  It would have a juridical personality separate and distinct from that of each of the joint venturers.

 2.  Each of the co-venturers would be liable with their private property to the creditors of the joint venture beyond their contributions to the joint venture.

 3.  Even if a co-venturer transfers his interest to another, the transferee does not become a co-venturer together with the others in the joint venture unless all the other co-venturers consent.  This is in consonance with the principle of delectus personarum.

 4.  Generally, the co-venturers acting on behalf of the joint venturers are agents thereof with capacity to bind the joint venture.

 5.  Death, retirement, insolvency, civil interdiction or dissolution of any co-venturer dissolves the joint venture. [Cesar L. Villanueva, Philippine Corporate Law 730-731, Rex Printing Company, 1998]

 

As a general rule, a corporation cannot become a partner. This limitation is based on public policy, since in a partnership, the corporation would be bound by the acts of persons who are not duly appointed and authorized agents and officers. This would be entirely inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively.

 

However, the Supreme Court, in the case of Tuason vs. Bolanos [95 Phil. 106 (1954)] noted that even if a corporation has no power to enter into a partnership, it may nonetheless validly enter into a joint venture agreement where the nature of the venture is in line with the business authorized by its charter.  Such joint venture need not be registered with the Securities and Exchange Commission (SEC) provided it does not result in the formation of a new corporation or partnership. [SEC Opinion, 18 March 1993] 

 

It must however be emphasized that such joint venture may be registered as a partnership provided:

 

1.         The articles of incorporation of the corporations involved must expressly authorize the corporation to enter into contracts of partnership with others in the pursuit of its business;

 

2.         The agreement or articles of partnership must provide that all the partners will manage the partnership; and

 

3.         The articles of partnership must stipulate that all the partners are and shall be jointly and severally liable for all the obligations of the partnership. [SEC Opinion, 29 February 1980]

 

 The corporation-partners shall embody the terms and conditions of their relationship in the partnership agreement and upon approval by the SEC, the partnership shall attain a juridical personality separate and distinct from the corporation partners [Hector S. de Leon, The Corporation Code of the Philippines Annotated 46, Rex Printing Company, Inc., 2002]. 

 

This, in a nutshell, is the nature of joint ventures in the Philippines.

 

Nicolas & De Vega Law Offices is a full-service law firm in the Philippines.  You may visit us at the 16th Flr., Suite 1607 AIC Burgundy Empire Tower, ADB Ave., Ortigas Center, 1605 Pasig City, Metro Manila, Philippines.  You may also call us at +632 4706126, +632 4706130, +632 4016392 or e-mail us at info@ndvlaw.com .

 

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