Fong V Duenas
Fong V Duenas
Fong V Duenas
DUENAS
FACTS:
Dueñas is engaged in the bakery, food manufacturing, and retailing business, which are all operated
under his two companies, D.C. DANTON, Inc. (Danton) and Bakcom Food Industries, Inc. (Bakcom). He
was an old acquaintance of Fong as they were former schoolmates at DLSU.
In November 1996, Dueñas and Fong entered into a verbal joint venture contract where they agreed to
engage in the food business and to incorporate a holding company under the name Alliance Holdings,
Inc. (Alliance). Its capitalization would be P65 Million to which they would contribute in equal parts. Fong
will contribute P32.5Million in cash while Dueñas will contribute all his Bakcom and Danton shares which
he valued at P32.5Million. Fong required Dueñas to submit financial documents that would support the
valuation of his shares. Fong remitted his contributions in tranches under the impression that it would be
applied as his subscription to Alliance’s shareholdings while Dueñas started processing the Boboli
international license they would use in their food business.
On June 13, 1997, Fong sent Dueñas a letter informing him that he would limit his contributions to
P5million instead of the original plan of P32.5 million. Dueñas still failed to give Fong the financial
documents on the valuation of the Danton and Bakcom shares. Moreover, Dueñas failed to incorporate
and register Alliance to the SEC. This prompted Fong to cancel the joint venture agreement and asked
Dueñas to refund the P5million he advanced. Dueñas admitted that he could not immediately return the
money as he already used it for Danton and Bakcom. Fong filed a complaint for a collection of sum of
money and damages.
RTC: Ruled in favor of Fong. The complaint was not for a collection of sum of money but rather an action
for rescission of contract. Dueñas’ failure to furnish Fong the financial documents and the delay in the
incorporation of Alliance for more than one year warrants rescission. The trial court also held that Dueñas
erroneously invested Fong’s contributions as the signed receipts provides that the such should be applied
as Fong’s advanced subscription to Alliance.
CA: Annulled the trial court’s ruling. The CA ruled that Fong’s June 13, 1997 letter evidenced his intention
to convert his cash contributions from “advances” to the proposed corporation’s shares, to mere
“investments.” Thus, contrary to the trial court’s ruling, Dueñas correctly invested Fong’s P5 Million
contribution to Bakcom and Danton. This did not deviate from the parties’ original agreement as
eventually, the shares of these two companies would form part of Alliance’s capital.
ISSUE: Whether or not the joint venture agreement of Fong and Dueñas is valid?
RULING:YES.
The Court notes that the parties’ joint venture agreement to incorporate a company that would hold the
shares of Danton and Bakcom and that would serve as the business vehicle for their food enterprise, is a
valid agreement. The failure to reduce the agreement to writing does not affect its validity or
enforceability as there is no law or regulation which provides that an agreement to incorporate
must be in writing. Both parties verbally agreed to incorporate a company that would hold the shares of
Danton and Bakcom and which, in turn, would be the platform for their food business. Fong obligated
himself to contribute half of the capital or P32.5 million. The parties never agreed that Fong would invest
his money in Danton and Bakcom.
The Court concludes that Fong’s cash contributions play an indispensable part in Alliance’s incorporation.
The process necessarily requires the money not only to fund Alliance’s registration with the SEC but also
its initial capital subscription. Thus, Dueñas erred when he invested Fong’s contributions in his two
companies. This money should have been used in processing Alliance’s registration. Its incorporation
would not materialize if there would be no funds for its initial capital.
Dueñas breached his obligation under the JVA when he failed to incorporate and register Alliance and
used the cash contributions for his businesses however, Fong’s diminution of his capital share to P5
Million also amounted to a substantial breach of the joint venture agreement. the Court holds that the joint
venture agreement between Fong and Dueñas is deemed extinguished through rescission under Article
1192 in relation with Article 1191 of the Civil Code. Dueñas must therefore return the P5 Million that Fong
initially contributed since rescission requires mutual restitution. After rescission, the parties must go back
to their original status before they entered into the agreement.