Primelink Properties and Development Corporation vs Ma. Clarita Lazatin-Magat

G.R. No. 167379 – 526 Phil. 394 – 493 SCRA 444 – Civil Law – Partnership – Dissolution and Winding Up – Joint Venture Agreement – Rights of Innocent Party 

In 1994, Primelink Properties and the Lazatin siblings entered into a joint venture agreement whereby the Lazatins shall contribute a huge parcel of land and Primelink shall develop the same into a subdivision. For 4 years however, Primelink failed to develop the said land. So in 1998, the Lazatins filed a complaint to rescind the joint venture agreement with prayer for preliminary injunction. In said case, Primelink was declared in default or failing to file an answer and for asking multiple motions for extension. The trial court eventually ruled in favor of the Lazatins and it ordered Primelink to return the possession of said land to the Lazatins as well as some improvements which Primelink had so far over the property without the Lazatins paying for said improvements. This decision was affirmed by the Court of Appeals. Primelink is now assailing the order; that turning over improvements to the Lazatins without reimbursement is unjust; that the Lazatins did not ask the properties to be placed under their possession but they merely asked for rescission.

ISSUE: Whether or not the improvements made by Primelink should also be turned over under the possession of the Lazatins.

HELD: Yes. In the first place, even though the Lazatins did specifically pray for possession the same (placing of improvements under their possession) is incidental in the relief they prayed for. They are therefore entitled possession over the parcel of land plus the improvements made thereon made by Primelink.

In this jurisdiction, joint ventures are governed by the laws of partnership. Under the laws of partnership, when a partnership is dissolved, as in this case when the trial court rescinded the joint venture agreement, the innocent party has the right to wind up the partnership affairs.

With the rescission of the JVA on account of petitioners’ fraudulent acts, all authority of any partner to act for the partnership is terminated except so far as may be necessary to wind up the partnership affairs or to complete transactions begun but not yet finished. On dissolution, the partnership is not terminated but continues until the winding up of partnership affairs is completed. Winding up means the administration of the assets of the partnership for the purpose of terminating the business and discharging the obligations of the partnership.

It must be stressed, too, that although the Lazatins acquired possession of the lands and the improvements thereon, the said lands and improvements remained partnership property, subject to the rights and obligations of the parties, inter se, of the creditors and of third parties and subject to the outcome of the settlement of the accounts between the parties, absent any agreement of the parties in their JVA to the contrary (here no agreement in the JVA as to winding up). Until the partnership accounts are determined, it cannot be ascertained how much any of the parties is entitled to, if at all.

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