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Based on the facts, non of the partners contributed • At ASI's request, Agreement contained
a fishpond or a real right to any fishpond. Their provisions protecting it as a minority group,
contributions were limited to P1,000 each based on including grant of veto powers over a number
their contract. of corporate acts and right to designate certain
officers.
The operation of the fishpond was the purpose of the • ASI's 30% capital stock was increased to 40%.
partnership. Neither said fishpond nor a real right The corporation was registered with the BOI
thereto was contributed. for availment of incentives with condition: at
least 60% of capital stock shall be owned by
Thus, Art 1773 is not applicable in the case at bar. PH nationals.
The Court ruled to remand the case to the lower • Business prospered but the relations between
court for further proceeding. parties deteriorated. Filipino group wanted to
expand the export operations; ASI objected as
it had other subsidiaries/ JV groups in the
proposed countries.
AURBACH vs SANITARY WARES
• Mar. 1983 - Annual stockholders' meeting; Examination of important provisions of the
elections were held. ASI insisted on adding Agreement as well as the testimonial evidence
officers to be one of the board of directors presented by the Lagdameo and Young Group
instead of the usual ratio of 3 (foreign) officers shows that the parties agreed to establish a JV and
is to 6 (filipino) officers. not a corporation. History of organization of
• CA upheld the SEC and directed: In all Saniwares and the unusual arrangements governing
subsequent elections, ASI cannot nominate its policymaking body are all consistent with a JV
more than 3 directors; Filipino stockholders and not an ordinary corporation.
shall not interfere in ASI's choice; Filipino
stockholders can nominate only 6 (if they Participants in a JV deviate from the traditional
cannot agree on the 5, they shall vote among pattern of corporation management. A noted
themselves, with cumulative voting to be authority has pointed out that just as in close
allowed but without interference from ASI). corporations, shareholders' agreements in JV often
contain provisions which do one or more of the
FOREIGN GROUP ARGUES: The Agreement following: (1) require greater than majority vote for
should be construed strictly. Agreement clearly shareholder and director action; (2) give certain
shows intent to form a corporation, not a JV. shareholders or groups of shareholders power to
Admission of evidence showing the intention to form select a specified number of directors; (3) give to the
a JV violates the parol evidence rule (Rule 130, §7). shareholders control over the selection and retention
CA prohibited stockholders from exercising their full of employees; and (4) set up a procedure for the
voting rights represented by number of shares, settlement of disputes by arbitration
amounting to a deprivation of property rights without o SEC found that (1) under the Agreement, there are
due process of law (basically, they should be two distinct groups in Saniwares: ASI (owns 40% of
allowed to use their cumulative voting rights in the capital stock), and the PH National stockholders
corporation as a whole, not just within their group as (own 60%); and (2) ASI is given certain protections
foreign stockholders). as the minority stockholder.
FILIPINO GROUP ARGUES: Agreement failed to §5 (a) of the uses the word "designated" and not
state parties' true intent. Parties intended to enter "nominated"/"elected" in the selection of the nine
into a joint venture (JV) enterprise. CA did not directors on a six to three ratio. Each group is
categorically rule that they (Lagdameo et al.) were assured of a fixed number of directors in the board.
the duly elected directors. Also, cumulative voting
should be struck down; the Agreement uses ASI in its communications referred to the enterprise
"designate", hence the 6 directors allotted to the Fil. as a JV.
stockholders should be selected by consensus.
Young testified that §16(c) of the Agreement saying
MAIN ISSUE: "Nothing herein contained shall be construed to
Who were the duly elected directors of Saniwares for constitute any of the parties hereto partners or joint
1983? To answer, we must determine: venturers" was merely to obviate the possibility
1. Nature of the business: JV or of the enterprise being treated as partnership for tax
corporation? (Note: I think this is important in order purposes and liabilities to third parties.
to determine what rules on voting will apply.)
Filipino entrepreneurs often need the assistance of
2. W/N the ASI group may vote their multinational corporations. Arrangement: foreign
additional 10% equity during elections of Saniwares' group becomes minority owner. Danger: foreign
BOD group merely uses JV to gain foothold/ test PH
waters. When business becomes profitable, the
HELD: foreign group undermines the local majority
(1) What is the nature of the business? ⇒ JOINT ownership and tries to take over the company.
VENTURE Courts should extend protection especially in
industries where constitutional and legal
Rule: Type of contract depends on their actual requirements reserve controlling ownership to
intention, which is determined in accordance with Filipinos.
the rules governing the interpretation and
construction of contracts. Not in the case but helpful for the next parts:
CUMULATIVE VOTING – in corporations, a system
Re: parol evidence rule, SC cited US cases ruling of voting for directors in which the shareholder can
that where there is evidence tending to prove that multiply his voting shares by the number of
the parties joined their efforts in furtherance of an candidates and vote them all for one person for
enterprise for their joint profit, the question whether director. This is intended to give minority
they intended to create a joint adventure/ some other shareholders a chance to elect at least one director
relation is a question of fact for the jury. whom they favor. For example, if there are five
directors to be elected, and 10,000 shares issued, a
shareholder with 1,000 shares could vote 5,000 for Court affirms the decisions of the SEC, impliedly
his candidate rather than being limited to 1,000 for affirmed by the CA: the duly elected directors of
each of the five candidates, always outvoted by Saniwares are the first 9 nominees (Aurbach, Griffin,
shareholders with 1,001 or more shares (Hill & Hill, Whittingham, Ernesto Lagdameo Sr. and Jr.,
2005). Enrique Lagdameo, Boncan, Lee, and Young are
declared the duly elected officers.)