PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO

W. LOPEZ, Petitioners, v. MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T.

Primelink Properties and Development Corporation is a domestic corporation engaged

Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin
and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining
parcels of land, with a combined area of 30,000 square meters in tagaytay.

On March 10, 1994, the Lazatins and Primelink, entered into a Joint Venture
Agreement5 (JVA) for the development of the aforementioned property into a residential
subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin
siblings obliged themselves to contribute the two parcels of land as their share in the
joint venture. For its part, Primelink undertook to contribute money, labor, personnel,
machineries, equipment, contractor's pool, marketing activities, managerial expertise
and other needed resources to develop the property and construct therein the units for
sale to the public.

They also agreed to share in the profits from the joint venture, thus:

1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or
income of the Joint Venture project, after deducting all expenses incurred in connection
with the land development (such as administrative management and construction
expenses), and marketing (such as sales, advertising and promotions), and

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or
income of the Joint Venture project, after deducting all the above-mentioned expenses.8

The parties agreed that any unsettled or unresolved misunderstanding or conflicting

The Lazatins agreed to subject the title over the subject property to an escrow
agreement. Conformably with the escrow agreement, the owner's duplicate of the title
was deposited with the China Banking Corporation.11 However, Primelink failed to
immediately secure a Development Permit from Tagaytay City, and applied the permit
only on August 30, 1995. On October 12, 1995, the City issued a Development Permit
to Primelink.12

In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that
Primelink comply with its obligations under the JVA, otherwise the appropriate action
would be filed against it to protect their rights and interests. This impelled the officers of
Primelink to meet with the Lazatins and enabled the latter to review its business
records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed
Primelink that they had decided to rescind the JVA effective upon its receipt of the said
letter. The Lazatins demanded that Primelink cease and desist from further developing
the property.

Subsequently, on January 19, 1998, the Lazatins filed, with the RTC of Tagaytay City, ,
a complaint for rescission accounting and damages, with prayer for temporary
restraining order and/or preliminary injunction against Primelink and Lopez. Plaintiffs
alleged, among others, that, despite the lapse of almost four (4) years from the
execution of the JVA and the delivery of the title and possession of the land to
defendants, the land development aspect of the project had not yet been completed,
and the construction of the housing units had not yet made any headway.

They averred that they sent a letter through counsel, demanding compliance of what
was agreed upon under the agreement but defendants refused to heed said demand.
After a succession of letters with still no action from defendants, plaintiffs sent a letter
on October 22, 1997, a letter formally rescinding the JVA.

After trial, a decision be rendered:

1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
defendants;

Defendants opposed plaintiffs' plea for a writ of preliminary injunction on the ground that
plaintiffs' complaint was premature, due to their failure to refer their complaint to a
Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876
before... filing their complaint in the RTC.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring
them in default, as well as the Order denying their motion to set aside the order of
default, alleging that these were contrary to facts of the case, the law and jurisprudence
In the meantime, plaintiffs adduced ex parte their testimonial and documentary
evidence.  On April 17, 2000, the RTC rendered a Decision
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
Ordering the rescission of the Joint Venture Agreement as of the date of filing of this
complaint;
The trial court anchored its decision on the following findings:... this court has observed,
and is thus convinced, that a pattern of what appears... to be a scheme or plot to reduce
and eventually blot out the net income generated  from sales of housing units by
defendants, has been established.
the joint venture project earned a net income of about
P2,603,810.64. This amount, however, was drastically reduced in a subsequent
financial report submitted by the defendants to P1,954,216.39. Shortly thereafter, and to
the dismay of the plaintiffs, the defendants submitted an income statement and a
balance sheet
Of the reported net income of P2,603,810.64... the plaintiffs should have received the
sum of P1,041,524.26 representing their 40% share under paragraph II and V of the
JVA. But this was not to be so. Even before the plaintiffs could get hold of their share
as... indicated above, the defendants closed the chance altogether by declaring a net
loss.
The court perceives this to be one calculated coup-de-grace that would put to thin air
plaintiffs' hope of getting their share in the profit under the JVA.
Defendants appealed the decision to the CA... the appellate court rendered a decision
affirming, with modification, the appealed decision.
Petitioners maintain that the aforesaid portion of the decision which unconditionally
awards to respondents "all improvements" on the project without requiring them to pay
the value thereof or to reimburse Primelink for all expenses incurred therefore is
inherently and... essentially illegal and confiscatory, oppressive and unconscionable
At the time respondents contributed the two parcels of land, consisting of
30,000 square meters to the joint venture project when the JVA was signed on March
10, 1994, the said properties were worth not more than P500.00 per square meter, the
"price tag" agreed upon the parties for the purpose of the JVA.  Moreover, before
respondents rescinded... the JVA sometime in October/November 1997, the property
had already been substantially developed as improvements had already been
introduced thereon; petitioners had likewise incurred administrative and marketing
expenses, among others, amounting to more or less
P40,000,000.00
All parties must be... restored to their original positions as nearly as possible upon the
rescission of a contract.  In the event that restoration to the status quo is impossible,
rescission may be granted if the Court can balance the equities and fashion an
appropriate remedy that... would be equitable to both parties and afford complete relief.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did
not specifically pray for their takeover of the property and for the possession of the
improvements on the parcels of land, nevertheless, respondents were entitled to said
relief as a... necessary consequence of the ruling of the trial court ordering the
rescission of the JVA.  The appellate court cited the ruling of this Court in the Aurbach
case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement.  When the agreement is silent on any particular issue, the general principles
of partnership may be resorted to.
They insist that petitioners are not entitled to rescission for the improvements because,
as found by the RTC and the CA, it was petitioner Primelink that enriched itself at the
expense of respondents.

They also aver that, under Article 1384 of the New Civil Code, rescission shall be only
to the extent necessary to cover the damages caused and that, under Article 1385 of
the same Code, rescission creates the obligation to return the things which were not
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be effected only when respondents can return whatever they may
be obliged to return. Respondents who sought the rescission of the JVA must place
petitioner Primelink in the status quo. They insist that respondents cannot rescind and,
at the same time, retain the consideration, or part of the consideration received under
the JVA. They cannot have the benefits of rescission without assuming its burden. All
parties must be restored to their original positions as nearly as possible upon the
rescission of a contract. In the event that restoration to the status quo is impossible,
rescission may be granted if the Court can balance the equities and fashion an
appropriate remedy that would be equitable to both parties and afford complete relief.

Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal
with rescissible contracts. What applies is Article 1191 of the New Civil Code.

ISSUES;

(1) whether respondents are entitled to the possession of the parcels of land covered by
the JVA and the improvements thereon introduced by petitioners as their contribution to
the JVA;

(2) whether petitioners are entitled to reimbursement for the value of the improvements
on the parcels of land.

The petition has no merit.

On the first issue, we agree with petitioners that respondents did not specifically pray in
their complaint below that possession of the improvements on the parcels of land which
they contributed to the JVA be transferred to them. Respondents made a specific prayer
in their complaint that, upon the rescission of the JVA, they be placed in possession of
the parcels of land subject of the agreement, and for other "reliefs and such other
remedies as are just and equitable in the premises." However, the trial court was not
precluded from awarding possession of the improvements on the parcels of land to
respondents in its decision. Section 2(c), Rule 7 of the Rules of Court provides that a
pleading shall specify the relief sought but it may add as general prayer for such further
or other relief as may be deemed just and equitable. Even without the prayer for a
specific remedy, proper relief may be granted by the court if the facts alleged in the
complaint and the evidence introduced so warrant.50 The court shall grant relief
warranted by the allegations and the proof even if no such relief is prayed for.51 The
prayer in the complaint for other reliefs equitable and just in the premises justifies the
grant of a relief not otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels
of land and the improvements on the said parcels of land. It bears stressing that the
parcels of land, as well as the improvements made thereon, were contributed by the
parties to the joint venture under the JVA, hence, formed part of the assets of the joint
venture.53 The trial court declared that respondents were entitled to the possession not
only of the parcels of land but also of the improvements thereon as a consequence of its
finding that petitioners breached their agreement and defrauded respondents of the net
income under the JVA.

On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under the
Court's ruling in Aurbach, is a form of partnership, and as such is to be governed by the
laws on partnership.

When the RTC rescinded the JVA on complaint of respondents based on the evidence
on record that petitioners willfully and persistently committed a breach of the JVA, the
court thereby dissolved/cancelled the partnership.54 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.55 On dissolution, the
partnership is not terminated but continues until the winding up of partnership affairs is
completed.56 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.

The transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs, and
the partition and distribution of the net partnership assets as provided by law.57 After all,
Article 1836 of the New Civil Code provides that unless otherwise agreed by the parties
in their JVA, respondents have the right to wind up the partnership affairs:

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has
the right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.

It must be stressed, too, that although respondents 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 under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article
1839 of the New Civil Code, absent any agreement of the parties in their JVA to the
contrary.58 Until the partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all.

It was thus premature for petitioner Primelink to be demanding that it be indemnified for
the value of the improvements on the parcels of land owned by the joint
venture/partnership. Notably, the JVA of the parties does not contain any provision
designating any party to wind up the affairs of the partnership.

Thus, under Article 1837 of the New Civil Code, the rights of the parties when
dissolution is caused in contravention of the partnership agreement are as follows:

(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and

(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.

(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others, may
do so, during the agreed term for the partnership and for that purpose may possess the
partnership property, provided they secure the payment by bond approved by the court,
or pay to any partner who has caused the dissolution wrongfully, the value of his
interest in the partnership at the dissolution, less any damages recoverable under the
second paragraph, No. 1(b) of this article, and in like manner indemnify him against all
present or future partnership liabilities.

(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2,
all the rights of a partner under the first paragraph, subject to liability for damages in the
second paragraph, No. 1(b), of this article.

(b) If the business is continued under the second paragraph, No. 2, of this article, the
right as against his co-partners and all claiming through them in respect of their
interests in the partnership, to have the value of his interest in the partnership, less any
damage caused to his co-partners by the dissolution, ascertained and paid to him in
cash, or the payment secured by a bond approved by the court, and to be released from
all existing liabilities of the partnership; but in ascertaining the value of the partner's
interest the value of the good-will of the business shall not be considered.

And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:

(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him
for the purchase of an interest in the partnership and for any capital or advances
contributed by him;

(2) To stand, after all liabilities to third persons have been satisfied, in the place of the
creditors of the partnership for any payments made by him in respect of the partnership
liabilities; andcralawlibrary

(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership.

The accounts between the parties after dissolution have to be settled as provided in
Article 1839 of the New Civil Code:

Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:

(1) The assets of the partnership are:

(b) The contributions of the partners necessary for the payment of all the liabilities
specified in No. 2.

(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and profits,

(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.

(3) The assets shall be applied in the order of their declaration in No. 1 of this article to
the satisfaction of the liabilities.

(4) The partners shall contribute, as provided by article 1797, the amount necessary to
satisfy the liabilities.

(5) An assignee for the benefit of creditors or any person appointed by the court shall
have the right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the
contributions specified in No. 4, to the extent of the amount which he has paid in excess
of his share of the liability.

(7) The individual property of a deceased partner shall be liable for the contributions
specified in No. 4.

(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights of
lien or secured creditors.

(9) Where a partner has become insolvent or his estate is insolvent, the claims against
his separate property shall rank in the following order:
(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribution.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED
insofar as they conform to this Decision of the Court.

Costs against petitioners.