FACTS:

Primelink Properties and Development Corporation ("Primelink") and the Lazatin siblings entered into a Joint Venture Agreement (JVA) for the development of a residential subdivision in Tagaytay City. The JVA included provisions for the sharing of net revenue, drawing allowances/advances, and the settlement of disputes through voluntary arbitration. Primelink submitted a projection of the project's sales-income-cost.

The Lazatins demanded compliance with the JVA and threatened to file a legal action. A meeting between the parties took place, and the Lazatins reviewed Primelink's business records. The Lazatins subsequently sent a letter informing Primelink of their decision to rescind the JVA. They filed a complaint for rescission, accounting, and damages against Primelink and its President Rafaelito W. Lopez.

The defendants opposed the plaintiffs' request for a preliminary injunction and argued that the dispute should have been referred to voluntary arbitration before filing the complaint in court.

The plaintiffs filed a complaint for rescission of the JVA and prayed for various reliefs. The defendants requested multiple extensions to file their answer but failed to do so. The plaintiffs moved to declare the defendants in default, which the court granted. The defendants later filed their answer and a motion to set aside the order of default, which the court denied.

The defendants appealed the orders declaring them in default and denying their motion to set aside the order of default, but the Court of Appeals dismissed their appeal. Meanwhile, the plaintiffs presented their evidence ex parte. The trial court eventually rendered a decision ordering the rescission of the JVA, the return of possession of the property to the plaintiffs, and the payment of the plaintiffs' share of the net income.

The plaintiffs filed a motion for execution pending appeal, which the trial court granted despite the defendants' opposition. The defendants appealed the decision to the Court of Appeals, raising various issues regarding the trial court's handling of the case.

ISSUES:

1. Did the trial court err in deciding the case without referring the complaint for voluntary arbitration?

2. Did the trial court err in issuing a writ of execution pending appeal?

3. Did the trial court err in refusing to decide Primelink's motion to quash the writ of execution pending appeal and the motion for reconsideration?

4. Did the trial court err in rescinding the joint venture agreement?

5. Did the trial court err in deciding that the appellees have the right to take over the subdivision and appropriate for themselves all the existing improvements introduced therein by Primelink?

6. Whether or not respondents are entitled to the possession of the improvements made by petitioner Primelink on the property.

7. Whether or not respondents can rescind the Joint Venture Agreement (JVA) and retain the consideration received under the JVA.

8. Whether respondents are entitled to the possession of the parcels of land covered by the Joint Venture Agreement (JVA) and the improvements thereon introduced by petitioners as their contribution to the JVA.

9. Whether petitioners are entitled to reimbursement for the value of the improvements on the parcels of land.

10. Whether the rescission of the Joint Venture Agreement (JVA) resulted in the dissolution of the partnership

11. Whether the possession of the lands and improvements transferred to the respondents were for the purpose of winding up the partnership affairs

12. Whether petitioner Primelink is entitled to indemnification for the value of the improvements on the lands

13. What is the order of payment in the distribution of assets in a partnership?

14. Who has the right to enforce the contributions to satisfy the liabilities of the partnership?

15. In what order will the claims against the separate property of an insolvent partner rank?

RULING:

1. The appellate court affirmed the decision of the trial court, with modification, and ordered the release of Transfer Certificate of Title No. T-10848 to the plaintiffs-appellees. The appellate court ruled that a joint venture is a form of partnership and is governed by the laws of partnership. The aggrieved parties filed a motion for reconsideration, which the CA denied.

2. The Court of Appeals (CA) ruled that respondents are entitled to the possession of the improvements as a necessary consequence of the rescission of the JVA. The CA cited the ruling of the Supreme Court in Aurbach v. Sanitary Wares Manufacturing Corporation and Article 1838 of the New Civil Code.

3. The CA also held that, under Article 1191 of the New Civil Code, the injured party may seek rescission of the obligation even after choosing fulfillment, if the latter becomes impossible. Therefore, respondents were entitled to rescind the JVA and retain the consideration received.

4. The court held that even though respondents did not specifically pray for the possession of the improvements in their complaint, the trial court was not precluded from awarding possession of the improvements to respondents. The court explained that under Rule 7 of the Rules of Court, a pleading may add a general prayer for such further or other relief as may be deemed just and equitable. The court further stated that even if a specific remedy is not prayed for, the court may grant relief warranted by the allegations and evidence. Therefore, the trial court was justified in placing respondents in possession of the parcels of land and the improvements thereon.

5. The court agreed with the ruling of the Court of Appeals (CA) that the petitioners and respondents entered into a joint venture, which is a form of partnership. As such, the court held that the principles and rules governing partnerships should apply. Therefore, the court affirmed the CA's ruling that petitioners are not entitled to reimbursement for the value of the improvements on the parcels of land.

6. The rescission of the JVA constituted a dissolution of the partnership.

7. The transfer of possession of the lands and improvements to the respondents was for the purpose of winding up the partnership affairs.

8. Petitioner Primelink is not entitled to indemnification for the value of the improvements on the lands.

9. The order of payment in the distribution of assets in a partnership is 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, and (d) those owing to partners in respect of profits.

10. The partners shall contribute the amount necessary to satisfy the liabilities of the partnership. An assignee for the benefit of creditors or any person appointed by the court has the right to enforce the contributions.

11. In the case of an insolvent partner or his estate being 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, and (c) those owing to partners by way of contribution.

PRINCIPLES:

• A joint venture is a form of partnership and is governed by the laws of partnership.

• A writ of execution pending appeal may be issued in the presence of good and compelling reasons.

• The court retains jurisdiction to rule on all questions related to execution.

• Rescission of a contract may be justified if there is substantial non-compliance.

• When a joint venture agreement is rescinded, parties may be entitled to appropriate the improvements introduced therein, subject to reimbursement or restitution of expenses incurred.

• Rescission of contracts is governed by Articles 1380 to 1389 of the New Civil Code.

• Article 1191 of the New Civil Code provides that the injured party in a reciprocal obligation may choose between fulfillment and rescission of the obligation, and may also seek rescission even after choosing fulfillment if the latter becomes impossible.

• The possession of improvements may be granted to the party who is entitled to the rescission of a joint venture agreement as a necessary consequence of the rescission.

• In joint ventures, the relation of the parties is governed by their agreement. When the agreement is silent on any particular issue, the general principles of partnership may be resorted to.

• A joint venture is a form of partnership and should be governed by the laws of partnership.

• Under Article 1838 of the Civil Code, where a partnership contract is rescinded due to fraud or misrepresentation, the party who is entitled to rescind is entitled to a lien on the partnership property for any sums paid by him and for any capital or advance contributed by him.

• Under Rule 7 of the Rules of Court, even without a specific prayer for a particular remedy, the court may grant relief warranted by the allegations and evidence presented.

• The court may place parties in possession of the improvements on the parcels of land if it is found that they are part of the assets of the joint venture.

• A rescission of a Joint Venture Agreement results in the dissolution of the partnership.

• The transfer of possession of partnership property may be for the purpose of winding up the partnership affairs.

• The value of a partner's interest in the partnership, less any damage caused to other partners, should be ascertained and paid in cash or through a bond approved by the court.

• The party entitled to rescind a partnership agreement is entitled to a lien on the surplus of partnership property, to stand in the place of partnership creditors, and to be indemnified against all debts and liabilities of the partnership.

• The settlement of accounts between partners after dissolution should follow the rules set forth in the Civil Code.

• The distribution of assets in a partnership shall follow the order of payment stated in the law.

• Partners have the obligation to contribute to satisfy the liabilities of the partnership.

• The separate property of a deceased partner is liable for the contributions to satisfy the liabilities of the partnership.

• Partnership creditors have priority on partnership property, while separate creditors have priority on individual property in possession of a court for distribution.