Case Summary (G.R. No. 167379)
Joint Venture Agreement Terms
The landowners contributed the real property; Primelink provided capital, labor, equipment, technical expertise, and marketing. Primelink would complete land development within three years (subject to force majeure) and secure all permits. Initial advances could total 20% of net revenue (60% to Primelink, 40% to landowners) for the first two years, thereafter 60/40 profit sharing. Disputes were to be referred to voluntary arbitration; title was held in escrow with China Banking Corporation.
Failure to Perform and Rescission Demand
Primelink delayed securing the City Development Permit until October 12, 1995. By April 10, 1997, the Lazatins demanded compliance. On October 22, 1997, they formally rescinded the JVA and sought cessation of development. On January 19, 1998, they filed a complaint for rescission, accounting, and damages (Civil Case No. TG-1776, RTC Tagaytay), alleging incomplete works, substandard construction, accounting irregularities, and failure to pay their profit shares (estimated at not less than ₱40 million).
Trial Court Proceedings and Ruling
Defendants repeatedly sought extensions to file an answer, were declared in default on June 24, 1998, and their motion to set aside default was denied. Ex parte evidence showed Primelink initially reported net income of ₱2.6 million (from which landowners’ 40% equaled ₱1.04 million) but later reported a loss. On April 17, 2000, the RTC rescinded the JVA as of the filing date, restored landowners to possession of land and improvements, ordered an accounting, awarded ₱1,041,524.26 plus attorney’s fees (₱104,152.40), and costs.
Court of Appeals Resolution
On appeal (CA-G.R. CV No. 69200), the CA affirmed with modification. It treated the JVA as a partnership under Articles 1780–1867 of the Civil Code. It ordered release of TCT No. 10848 from escrow and cancellation of any annotation. Invoking Aurbach v. Sanitary Wares Manufacturing Corporation, the CA held that rescission entitled landowners to recover land and improvements as partnership assets.
Issues on Restitution of Improvements
Primelink challenged the unconditional return of improvements without reimbursement of its ₱40 million development expenses, arguing Articles 1384–1385 and 1191 of the Civil Code require mutual restitution or balancing equities when rescinding reciprocal obligations. It contended that landowners neither prayed for nor pro
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Parties and Joint Venture Agreement
- Petitioners: Primelink Properties and Development Corporation (a domestic real estate developer) and its President/CEO Rafaelito W. Lopez
- Respondents: Ma. Clarita T. Lazatin-Magat and her brothers Jose Serafin T. Lazatin, Jaime Teodoro T. Lazatin, and Jose Marcos T. Lazatin (co-owners of two adjacent parcels in Tagaytay City)
- Joint Venture Agreement (JVA) dated March 10, 1994, for development of “Tagaytay Garden Villas” subdivision
- Respondents contributed 30,000 sq. m. of land (TCT No. T-10848) as their equity; Primelink pledged capital, labor, equipment, expertise, marketing, and management
Essential Terms of the JVA
- Primelink’s obligations: survey and master-planning; secure permits; furnish materials, labor, services; guarantee completion within three years (except electrical works by MERALCO); provide manpower and marketing staff
- Profit sharing and advances: first two years, 20% of net revenue available as advances (60% to Primelink; 40% to landowners); thereafter, 60% and 40% respectively of net sales income
- Final profit distribution: 60% to developer, 40% to landowners, net of development, marketing, and administrative expenses
- Projection of gross income P307,769,740 versus total expenses P132,224,000; projected net P175,545,740
- Arbitration clause for disputes; escrow agreement depositing land titles with China Banking Corporation
Breach and Rescission
- Primelink delayed securing development permit until October 12, 1995
- Respondents’ April 10, 1997 demand for compliance; October 22, 1997 letter rescinding the JVA and demanding cessation of development
- January 19, 1998, respondents filed Civil Case No. TG-1776 for rescission, accounting, damages, and injunctive relief
Trial Court Proceedings
- Plaintiffs alleged incomplete land development after four years; poor workmanship and substandard materials; breach of accounting/auditing procedures; withheld advances and profit shares estimated at no less than P