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[PARTNERSHIP- DEFINITION] directors shall be designated by ASI, while the other 6 are

02 AURBACH V. SANITARY WARES to be designated by the other stockholders (FI)


Dec 15, 1989 | Gutierrez, Sr J. |  The stock of ASI increased from 30% to 40% and the joint enterprise was
prosperous for a time, but disagreements led to the deterioration of the
Petitioner/s: WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM relationship between FI and ASI.
and CHARLES CHAMSAY, petitioners, o Disagreement was due to their desire to expand the export
Respondent/s: SANITARY WARES MANUFACTURING CORPORATOIN, operations of the company to w/c ASI objected to as it apparently
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. had other subsidiaries of joint venture groups in the countries
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and where the PH exports were contemplated.
AVELINO V. CRUZ, respondents.  1983: Annual stocholders meeting was held, presided by Chairman Baldwin
Young. They proceeded to election of members of Board of Directors. The
Petitioner/s: SANITARY WARES MANUFACTURING CORPORATION, ERNESTO ASI group nominated 3 persons (Aurbach, Griffing and Wittingham). The FI
R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, nominated 6 or 7 (Lagdameo, Sr., Boncan, Lagdameo Jr, Lee, Young). A
BALDWIN YOUNG and AVELINO V. CRUX, petitioners, certain Ceniza nominated Salazar, who in turn nominated Chamsay.
vs. o Chairman Baldwin Young ruled the last two nominations out of
Respondent/s:THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN order on the basis of section 5 (a) of the Agreement, since
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO consistently during the past annual meetings, only 9 people were
SALAZAR, respondents. nominated for the 9-member Board of Directors.
o Protests were made against Chairman Young’s decision. ASI
Petitioner/s: LUCIANO E. SALAZAR, petitioner, announced that they were cumulatively voting for 3 ASI nominees
vs. and Charles Chamsay. Salazar (FI) announced that they were
Respondent/s: SANITARY WARES MANUFACTURING CORPORATION, voting in favour of Salazar but chairman still instructed Corp.
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. Sec. to cast all votes for the 6 nominees of FI and 3 nominees
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO of ASI, thus certifying as elected all the nominees excluding 2
V. CRUZ and the COURT OF APPEALS, respondents. additional persons nominated (Chamsay & Salazar)
[Lagdameo Group]
Doctrine: Article 1767. By the contract of partnership two or more persons bind  Meeting was adjourned against protests by ASI w/c prompted Young to
themselves to contribute money, property, or industry to a common fund, with the threaten the disagreeing stockholders to be thrown out from the room.
intention of dividing the profits among themselves. o ASI, Salazar and the other stockholders decided to continue in the
lobby leading them to certify as elected directors 5 people:
Two or more persons may also form a partnership for the exercise of a profession Wolfgang Aurbach, John Griffin, David Whittingham, Charles
Facts: Chamsay and Luciano E. Salazar with the 4 remaining positions not
 Sanitary Wares Manufacturing Corp (Saniwares) is a domestic corporation being filled due to a tie between the remaining nominees. [Salazar
incorporated primarily for manufacturing and marketing of sanitary wares Group]
o It entered into an agreement with a foreign corp., American o This led to the 2 petitions.
Standard Inc. (ASI), as well as some Filipino Investors (FI) for the  1st Petition: Prelim injunction by Saniwares, Emesto V. Lagdameo, Baldwin
ownership of Saniwares w/c included provisions relevant to the Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and
nomination and election of the directors of the corporation1: George F. Lee against Luciano Salazar and Charles Chamsay. [Lagdameo
 The management of the Corporation shall be vested in a Group]
Board of Directors w/ 9 people. As long as ASI shall own
at least 30% of the outstanding stock of the Corp, 3 of 9  2nd petition: quo warranto and application for receivership by Wolfgang
Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay [Salazar Group] against the group of Young and Lagdameo and
1 3. Articles of Incorporation
Avelino F. Cruz.
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as
Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for SEC Hearing Officer: Election of Lagdameo Group valid.
(1) Cumulative voting for directors: CA: Remand case to SEC. A new stockholders' meeting of Saniwares be convoked
xxx xxx xxx ASAP.
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of
nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the  ASI can’t nominate more than 3 directors, FI not to interfere
Corporation, three of the nine directors shall be designated by American-Standard, and the other six
shall be designated by the other stockholders of the Corporation.
 FI can nominate only 6 candidates. If FI can’t agree on the 6, FI shall vote
only among themselves with cumulative voting to be allowed but without The Lagdameo Group stated in their appellees' brief in the Court of Appeal Sec 100
interference from ASI. PH Corp Code recognizes the right of stockholders to enter into agreements
regarding the exercise of their voting rights.
Ruling:
W/N Saniwares is a joint venture or a corporation – Joint Venture SEC As correctly held by the SEC Hearing Officer:
● Whether the parties to a particular contract have thereby established among ● A noted authority has pointed out that just as in close corporations,
themselves a joint venture… depends upon their actual intention which is shareholders' agreements in joint venture corporations often contain
determined in accordance with the rules governing the interpretation and provisions which do one or more of the following:
construction of contracts. ● (1) require greater than majority vote for shareholder and director action;
● (2) give certain shareholders or groups of shareholders power to select a
The ASI Group and petitioner Salazar: specified number of directors;
● actual intention of the parties should be viewed strictly on the "Agreement" ● (3) give to the shareholders control over the selection and retention of
w/c clearly states that the parties' intention was to form a corporation and not employees; and
a joint venture. They specifically mention number 16 under Miscellaneous ● (4) set up a procedure for the settlement of disputes by arbitration
Provisions which states:
● Assuming that sec. 5(a) of the Agreement relating to the designation or
c) nothing herein contained shall be construed to constitute any of nomination of directors restricts the right of the Agreement's signatories to
the parties hereto partners or joint venturers in respect of any vote for directors, such contractual provision, as correctly held by the SEC,
transaction hereunder. is valid and binding upon the signatories thereto, which include appellants.
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, CA stated:
Contrary to ASI Group's stand, the Lagdameo and Young Group argue that:
● Intention is a joint venture (partnership), if there are any words in the ● Like in other joint venture companies, the extent of ASI's participation in the
Agreement appearing contrary to the evident intention of the parties, the management of the corporation is spelled out in the Agreement. The
intent shall prevail over the former. (Art. 1370, New Civil Code). allocation of board seats is obviously in consonance with the minority
● The various stipulations of a contract shall be interpreted together attributing position of ASI. Having entered into a well-defined contractual relationship, it
to the doubtful ones that sense which may result from all of them taken is imperative that the parties should honor and adhere to their respective
jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention rights and obligations thereunder. This Court should recognize and uphold
of the contracting parties, their contemporaneous and subsequent acts shall the division of the stockholders into two groups, and at the same time uphold
be principally considered. (Art. 1371, New Civil Code). the right of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be.
Acc to the Court: ● The ASI Group and petitioner Salazar: ASI has the right to vote their
● Based on the Agreement and testimony of the Lagdameo and Young Group, additional equity pursuant to Section 24 of the Corporation Code which gives
the parties agreed to establish a joint venture and not a corporation: the stockholders of a corporation the right to cumulate their votes in electing
○ ASI agreed to be the minority group, as long as there be provisions directors, however the question is whether this can be applied to a joint
in the Agreement to protect its interest w/c it does as evidenced by: venture w/ clearly defined agreements:
■ It is pertinent to note that the provisions of the Agreement ○ The legal concept of a joint venture is of common law origin. It has
requiring a 7 out of 9 votes of the board of directors for no precise legal definition but it has been generally understood to
certain actions, in effect gave ASI (which designates 3 mean an organization formed for some temporary purpose. It is in
directors under the Agreement) an effective veto power. fact hardly distinguishable from the partnership, since their
elements are similar community of interest in the business, sharing
JOINT VENTURE: of profits and losses, and a mutual right of control. The main
● Section 5 (a) of the agreement uses the word "designated" and not distinction cited by most opinions in common law jurisdictions is
"nominated" or "elected" in the selection of the nine directors on a six to that the partnership contemplates a general business with some
three ratio. FI and ASI is assured of a fixed number of directors in the board. degree of continuity, while the joint venture is formed for the
● In communications from ASI, referred to enterprise as joint venture. execution of a single transaction, and is thus of a temporary nature
● Section 16(c) of the Agreement that "Nothing herein contained shall be This observation is not entirely accurate in this jurisdiction, since
construed to constitute any of the parties hereto partners or joint venturers in under the Civil Code, a partnership may be particular or universal,
respect of any transaction hereunder" was merely to obviate the possibility of and a particular partnership may have for its object a specific
the enterprise being treated as partnership for tax purposes and liabilities to undertaking. It would seem therefore that under Philippine law, a
third parties. joint venture is a form of partnership and should thus be governed
by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others.
● Moreover, the usual rules as regards the construction and operations of
contracts generally apply to a contract of joint venture. Bearing these
principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity
lies in the agreement of the parties.

● CA was correct in its interpretation. Board is composed of Wolfgang


Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin
young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee as the duly elected directors of Saniwares at the March
8,1983 annual stockholders' meeting.

● The joint venture character of the enterprise must always be taken into
account, so long as the company exists under its original agreement.
Cumulative voting may not be used as a device to enable ASI to achieve
stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the
majority status of the Filipino investors as well as to maintain the minority
status of the foreign investors group as earlier discussed. They should be
maintained.

Dispositive
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

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