Case Summary (G.R. No. 91029)
Key Dates
JVA executed: February 12, 1997. TSC executed: July 14, 1997. PGI billings: November 24, 1997 and January 15, 1998. Last demand from PGI: January 5, 1999. PGI suit filed: November 11, 1999 (RTC, Quezon City). RTC judgment: June 2, 2004. Court of Appeals decision: January 28, 2008. Petitions to the Supreme Court consolidated: September 8, 2008.
Applicable Law
1987 Philippine Constitution (governing framework for decisions since 1990). Relevant Civil Code provisions relied upon in the decision: Article 1207 (concurrence of debtors/creditors and solidarity), Article 1208 (presumption of divided obligations), and Article 1797 (partnership profit and loss sharing rules). The decision also applied prior jurisprudence regarding interest on money obligations (Eastern Shipping Lines).
Contractual Structure and Allocation of Contributions under the JVA
The JVA established a 50–50 joint venture. Section 4 allocated capital contributions: Marsman Drysdale to contribute the land (appraised at P420,000,000, delivered in “buildable condition” within 90 days), and Gotesco to contribute cash in the aggregate of P420,000,000 (P50,000,000 on signing; balance by progress billings not to exceed ten months from delivery of the property). Section 4.3 provided funding/financing rules: construction funding primarily from Gotesco’s cash; subsequent funding from pre-selling or bank loans arranged by Gotesco; Marsman Drysdale not obligated to fund the project beyond the land; and an express provision (4.3.8–4.3.9) that funds advanced by a party shall be repaid by the joint venture and that a party who substitutes an advance for a defaulting party may be indemnified by the defaulting party.
PGI’s Engagement, Performance, and Claims
PGI performed geotechnical and seismic services under the TSC but completed only four of the five boreholes because the joint venturers allegedly failed to clear the drill area; PGI did complete the seismic study. PGI issued bills totaling P535,353.50 (P284,553.50 and P250,800) and, after nonpayment despite demands, filed suit for collection of sums and damages against both Marsman Drysdale and Gotesco.
Trial Court Findings and Relief
The RTC found in favor of PGI and ordered Marsman Drysdale and Gotesco jointly to pay P535,353.50 with legal interest from the decision date, exemplary damages (P200,000), attorney’s fees (P200,000) to PGI, costs of suit, and granted Marsman Drysdale’s cross-claim against Gotesco to reimburse the full amount paid to PGI and additional attorney’s fees (P100,000).
Court of Appeals Modification
The Court of Appeals partly affirmed but modified the RTC judgment: it deleted the award of exemplary damages in favor of PGI and denied the P100,000 attorney’s fee claimed by Marsman Drysdale; it ordered Gotesco to reimburse Marsman Drysdale 50% of the aggregate sum due PGI (rather than the full lump sum). The appellate court reasoned that the JVA could not bind third parties like PGI and that Articles 1207 and 1208 of the Civil Code presumed a divided (non-solidary) obligation between co-debtors unless solidarity is expressly provided or required by law.
Issues Presented on Supreme Court Review
The consolidated petitions raised, inter alia: (1) whether Marsman Drysdale should have been held jointly liable with Gotesco notwithstanding the JVA allocation of monetary obligations to Gotesco; (2) whether PGI was entitled to payment given claimed incomplete performance; (3) whether Marsman Drysdale was entitled to attorney’s fees and reimbursement from Gotesco; and (4) the proper measure and computation of interest.
Supreme Court’s Treatment of Factual Findings
The Supreme Court declined to disturb the factual findings that PGI rendered compensable services and that the joint venture acknowledged PGI’s claim (e.g., issuance of a Certificate of Payment and billing to the consortium). The Court recognized its limited role on facts in a petition for review and found no basis to overturn the congruent findings of the lower courts.
Liability to PGI: Third-Party Rights and Nature of the Obligation
The Court held that PGI, as a contractor, had a direct claim against the joint venturers named in the TSC. Because the TSC identified the “OWNER” as “Marsman-Drysdale Land, Inc./Gotesco Properties, Inc., a Joint Venture,” PGI’s invoices and the contract established the joint venturers as the clients. The JVA’s internal allocation of contributions could not defeat PGI’s external claim: under Civil Code Articles 1207 and 1208, concurrence of debtors does not create solidarity unless expressly stated or required by law; absent such express solidarity, the obligation to PGI is presumed divided into equal shares absent contrary wording. Consequently, the Court treated the debt to PGI as a joint obligation between the two venturers.
Application of Partnership Law to Joint Venture Losses
Treating the joint venture as a form of partnership, the Court applied Article 1797 of the Civil Code (losses and profits distributed in conformity with the agreement). The JVA provided a 50–50 sharing of proceeds but did not stipulate loss allocation; Article 1797 therefore mandated that losses be shared in the same proportion as profits — i.e., 50–50. The Court thus concluded that Marsman Drysdale and Gotesco were equally liable for the P535,353.50 owed to PGI.
Rejection of Marsman Drysdale’s Cross-claim Recovery and Attorney’s Fees
Although the trial court had allowed Marsman Drysdale’s cross-claim for reimbursement from Gotesco, the Supreme Court found that ordering Gotesco to reimburse Marsman Drysdale was improper. Because both parties are jointly liable to PGI and losses are to be split 50–50 under partnership rules, permitting Marsman Drysdale to recover what it paid from Gotesco would contravene the partnership loss allocation and result in unjust enrichment of Marsman Drysdale at Gotesco’s expense. Accordingly, the cross-claim recovery order was deleted. Marsman Drysdale’s request for attorney’s fees was denied: Marsman Drysdale could lawfully advance funds on behalf of the joint venture (per JVA provisions requiring repayment by the joint venture), and its insistence that Gotesco alone bore responsibility did not render the action against it groundless such that attorney’s fees were warranted.
Interest and Rate Applied
The Court imposed legal interest of 12% per annum on each joint venturer’s respective obligation, computed from the la
Case Syllabus (G.R. No. 91029)
Facts of the Case
- On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for construction and development of an office building on land owned by Marsman Drysdale in Makati City.
- The JVA specified that the parties would implement the project on a 50%–50% basis (Section 4: Capital of the JV).
- Section 4.1 of the JVA: Marsman Drysdale would contribute the property appraised at P420,000,000.00 and would deliver the property in a "buildable condition" within ninety (90) days from signing, barring unforeseen circumstances beyond its control; "buildable condition" meant demolition of the old building down to ground level.
- Section 4.2 of the JVA: Gotesco would contribute P420,000,000.00 in cash, payable P50,000,000.00 on signing and the balance P370,000,000.00 by progress billings relative to development and construction but in no case exceeding ten (10) months from delivery of the property in buildable condition; a joint account to be opened and maintained by both parties for the balance and other project concerns.
- Section 4.3 (Funding and Financing) of the JVA included:
- 4.3.1: Construction funding to be obtained from Gotesco's cash contribution.
- 4.3.2: Subsequent funding from pre-selling of units or, if necessary, from loans arranged by Gotesco.
- 4.3.3: Marsman Drysdale not obligated to fund the project beyond its land contribution.
- 4.3.4: If project cost exceeded available funds, parties to agree on other sources and terms of funding.
- 4.3.8: All funds advanced by a party (or by third parties in substitution) shall be repaid by the joint venture.
- 4.3.9: If any party agrees to advance funds but fails to do so, the other party may advance the shortfall and the defaulting party shall indemnify the advancing party on demand for losses, costs and expenses incurred in so doing.
- The JVA provided that proceeds from the joint venture shall be shared equally on a 50:50 ratio unless changed pursuant to Section 4.3.
Technical Services Contract (TSC) and Scope of PGI’s Engagement
- Via a Technical Services Contract dated July 14, 1997, the joint venture engaged Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic study, and geotechnical engineering for the project.
- The TSC’s SC-1 Definitions identified the OWNER as "Marsman-Drysdale Land, Inc./Gotesco Properties, Inc., a Joint Venture and its authorized representatives and successors in interest."
- PGI completed only four of the five boreholes required for subsurface soil exploration, attributing failure to drill the remaining borehole to the joint venture partners’ failure to clear the drilling area.
- PGI completed the seismic study.
Invoices, Demands, and Project Termination
- PGI billed the joint venture on November 24, 1997 for P284,553.50 representing partial subsurface soil exploration (Billing Invoice No. 437).
- PGI billed on January 15, 1998 for P250,800 representing the completed seismic study (Billing Invoice No. 526).
- PGI made repeated demands for payment (evidenced by exhibits and record references).
- Due to unfavorable economic conditions, the joint venture was cut short and the planned building project was eventually shelved.
Commencement of Litigation and Parties’ Pleadings
- PGI filed a complaint for collection of sum of money and damages on November 11, 1999 at the Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.
- Marsman Drysdale, in its Answer with Counterclaim and Cross-claim, passed responsibility for payment to Gotesco, invoking the JVA provision that monetary expenses would be solely liable to Gotesco.
- Gotesco countered that PGI had no cause of action because PGI had not completed all services required by the TSC, and that Marsman Drysdale’s failure to clear the property prevented PGI from completing its work.
Trial Court Ruling (RTC, Branch 226) — Decision of June 2, 2004
- The RTC rendered judgment in favor of PGI and ordered defendants Marsman Drysdale and Gotesco to pay jointly:
- P535,353.50 with legal interest from the date of the RTC decision until fully paid;
- P200,000.00 as exemplary damages in favor of PGI;
- P200,000.00 as attorney’s fees in favor of PGI;
- costs of suit.
- The RTC granted Marsman Drysdale’s cross-claim against Gotesco, ordering:
- Gotesco to reimburse Marsman Drysdale P535,353.50 in accordance with the JVA; and
- Gotesco to pay Marsman Drysdale P100,000.00 as attorney’s fees.
- The RTC decision was penned by Judge Leah S. Domingo Regala and is reflected in the records and exhibits cited.
Post-Trial Motions and Appellate Proceedings
- Marsman Drysdale moved for partial reconsideration, contending it should not have been held jointly liable and challenging awards of exemplary damages and attorney’s fees; the motion was denied by RTC Resolution of October 28, 2005.
- Both Marsman Drysdale and Gotesco appealed to the Court of Appeals (CA).
- The CA, by Decision of January 28, 2008, affirmed the RTC decision with modification:
- Deleted the award of exemplary damages in favor of PGI;
- Deleted the P100,000.00 attorney’s fees awarded to Marsman Drysdale by the RTC;
- Ordered Gotesco to reimburse Marsman Drysdale 50% of the aggregate sum due PGI instead of the lump sum P535,353.50 awarded by the RTC;
- The rest of the RTC Decision stood affirmed.
- The CA reasoned that the JVA could not affect third persons like PGI based on the principle of relativity of contracts — that contracts bind only parties who entered into them and cannot favor or prejudice a third person, even if aware and acting wi